Amazon shares down on surprising profit drop

The company misses profit expectations by a mile for the first quarter, but revenue was a big beat.

By Kim Peterson Apr 26, 2011 4:32PM
Updated: 6 p.m. ET.

Shares of Amazon (AMZN) were all over the place after hours -- but ultimately lower -- as investors tried to digest the results from the company's first quarter. Profit fell 33% -- yes, you read that right -- to $201 million, or 44 cents a share, down from $299 million or 66 cents a share, in the year-ago period.

Analysts were expecting a profit of 60 to 61 cents a share. Amazon ended up spending more money than expected in the quarter on cloud computing and other businesses.

Shares were off 2.3% to $178.20 at 6 p.m. ET after falling 1.7% to $182.30 in regular trading. But to get to $178.20 was a bit of a strange trip. Shares fell to as low as $171 immediately after the earnings report came out, then recovered all of that loss. And then fell again.

The company was able to beat expectations handily on revenue, however, reporting $9.86 billion -- a 38% increase from the year ago period. Analysts were only expecting $9.54 billion in revenue. In its January forecast, Amazon said it was expecting $9.1 billion to $9.9 billion in revenue.

The solid revenue numbers were enough to cheer investors initially dismayed by the profit drop.

"The concern that people had, that they were going to spend more than the Street was expecting, happened," an analyst at Evercore Partners told Reuters. "But when you look at the kind of growth acceleration they are showing on the top line and surpassing pretty much all Street expectations, I think that clearly what they are doing makes sense."

Amazon has been spending significant cash for the last several quarters on improving its infrastructure -- opening new distribution centers to meet demand from its increasing number of premium "Prime" customers. Chief Financial Officer Tom Szkutak said the company has announced nine new fulfillment centers, and of those one is open and one is gearing up to launch soon. The remainder will open this year -- and Amazon could announce even more.

The company's cloud computing business is also gaining steam, although a recent hiccup in that business took some websites offline for nearly two days.

The company's operating income -- a closely watched data point for analysts -- was $322 million, dropping operating margin to 3.3%. Analysts had been expecting a 3.8% margin, MarketWatch reported.

Amazon's international business was impacted by the Japanese earthquake and subsequent tsunami. Szkutak said international revenue growth had been on track for 32% in the quarter, but the disaster slowed that to 27% growth.

Amazon's forecast for the current quarter didn't give investors much to smile about, either. The company said that operating income should be between $95 million and $245 million -- far below the $356.4 million that analysts were hoping to see.

But the company's revenue forecast was rosy, with estimates at between $8.85 billion and $9.65 billion. Analysts had expected $8.75 billion, writes Dan Gallagher of MarketWatch.

The stock is down 1.9% this week but up slightly on the year.

Amazon is also in the news this week for fighting back on Apple's (AAPL) lawsuit over the term "Appstore." Apple sued Amazon last month for using that word -- saying people would be confused -- and Amazon has filed a 10-page countersuit asking to dismiss Apple's lawsuit.

To bolster its case, Amazon grabbed a quote from Apple's chief executive, Steve Jobs, in an earnings call last year referring to the "app stores" on the Android platform, Cnet reports.

Charley Blaine contributed to this report.

Apr 26, 2011 7:55PM

wait till these half wits in the government starts to tax for items. the buying will slow down some. thank you government. malloy, from ct. really wants to tax these companies


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