Amazon shares sink after earnings drop 73%

The company is spending heavily on infrastructure and to develop its Kindle Fire tablet, which it will likely sell at a loss.

By Kim Peterson Oct 25, 2011 4:55PM
Updated at 8 a.m. ET Wednesday

Shares of Amazon (AMZN) were slumping Wednesday after the company missed Wall Street expectations on profit and revenue for the third quarter.

The company has been on a spending spree all year, building up its infrastructure for the holiday season and for the launch of its new line of Kindle devices. And generally investors have been fine with that.

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But the third quarter brought an even bigger spike in spending that muted healthy sales. The company said its profit was $63 million, or 14 cents a share, down 73% from a year ago. That was far below the analyst expectation for 24 cents a share.

Revenue soared 44% to $10.9 billion, which was roughly what analysts wanted to see.

The company didn't directly address the drop in profit in its earnings announcement.

For the fourth quarter, Amazon said it expects net sales of between $16.45 billion and $18.65 billion. The company expects anywhere from an operating loss of $200 million to an operating profit of $250 million. That would range from a 142% drop to a 47% drop from a year ago.

Amazon's highly anticipated Kindle Fire tablet goes on sale Nov. 15 for $199. The tablet is widely thought to be the first real competition to the Apple (AAPL) iPad, although it has far fewer bells and whistles.

The Fire comes at a significantly lower price than the iPad, and Amazon is selling them at a loss that one firm has estimated at about $10 per unit. But the company is hoping to make up for the difference with sales of digital books, movies and other content.

An analyst with Barclays thinks Amazon could sell 4.5 million Kindle Fires in the fourth quarter. That may hack into the company's margins, however.

"They don't care that the operating margin is 1% or 2%," a Needham & Co. analyst told Bloomberg.

Even before the earnings report, some analysts said that Amazon was simply too expensive. Analysts from BGC said the company's price-earnings multiple is 100 times their 2011 estimate and five times that of other companies the firm covers. "Amazon is neither the fastest growing, or most profitable, company in our coverage and given the disruption occurring in physical books, music, and movies it is hard to justify the premium valuation," the analysts wrote.

Amazon shares closed Tuesday down 4.4% to $227.15, a gain of more than 37% in the last year. After the company released its earnings report, shares fell more than 14% in after-hours trading.

Let me get this right, a company that made $63 million in profits while other businesses are struggling just to keep from laying off workers gets abused by mindless analysts resulting in plummeting  stock value...hmmmmmm...this is exactly what's wrong with Wallstreet. 


And when is investment in infrastructure to promote future profitability a bad thing? That's what's wrong with our country, we all want more and better jobs, but we don't want to pay for the basic infrastructure to take us to the promised land of prosperity. Sometimes you need to spend money (wisely) to make money. Is this such a tough concept?

Oct 25, 2011 7:32PM

Average Joe


This is exactly what is wrong with this country.  People say that Wall Street isn't part of the problem.  Actually, they are a LARGE portion of the problem.  You have these financial "experts" who don't have a clue on how to run companies or to create or manufacture the product they do, telling the COMPANIES what they SHOULD be making based on forecasts that are 3, 6 or 9 months old.  Then, when something happens during the year that wasn't expected and the company misses the numbers, then these Wall Street "experts" slam the company and the stock plunges.


Take Netflix.  How many months ago did they raise the prices.  Yet, when the analysts get the chance to slam the company at a earnings report, the stock tanks 35%.


Take Cisco who laid off 10,000 employees because while their sales were better than last year, PROFITS were lower than what analysts expected.  So, the CEO lays off 10,000 people to raise the bottom line to be in line with these "Experts", then he will enjoy a huge pig-fat laden bonus while 10,000 people now struggle to have a happy holidays.


Wall Street has FAR more power and influence over stock prices of these companies, and with inside information, they will have all of their billion dollar hedge fund managers' accounts poised and ready to execute millions of transactions the instant the earnings go public, and will profit tremendously either way.  Meanwhile, once the news trickles down to the average investor and they make a trade, it is too late.  The fat pigs all ready emptied the trough and left nothing for the working, suffering middle and lower classes.


Oct 25, 2011 7:33PM

Just a quick observation across the latest quarterly results. Wall Street reactions seem to indicate a lack of alignment, or should this be called awareness, on the part of the esteemed "analysts". Maybe companies like Amazon did not communicate clearly throughout the quarter, or perhaps they gambled that revenue would downplay spending?


The analysts won't change until it makes financial sense for them to collectively change how predictions are made. They don't make sense to normal people, as it used to be if a company "made" a profit, they were in the black ink and doing well. In today's market (and for some time before now), the analyst community - who could take a due share of blame for "Occupy" complaints - drives the market far more than corporations. Apologies for stating the obvious, but it leads to my point.


Amazon should seriously reconsider the Kindle/Kindle Fire idea and whether reading products are their core business (these are not books, merely appliances that compete with far more versatile and popular machines). Amazon is extraordinary across the board and may not need to "rat hole" on digital books while that "market segment" continues to entice and do great harm to its many suitors. Amazon needs to refocus and declare what they do best (sell online, easily, quickly, effectively) as a market merchant and not be a product developer.


Oct 26, 2011 12:58AM
$AMZN getting bombarded with state and local tax audits which can lead to millions in fines, interest, penalty.  I valued $AMZN on  the intrinsic value is at $52.39.  I won't be investing in this stock anytime soon!
Oct 25, 2011 7:29PM

shock and awe tactics to sell high and then buy low as the stock burns and then rises from the ashes, making the wallstreet rich even richer

Oct 25, 2011 8:32PM
Well I guess should cancel my pre-order for my kindle fire so that Amazon will not keep losing money. I didn't realise Amazon was doing so badly. I'm glad the stock holders are on top of this so I don't waste my money on a bad product.
Oct 25, 2011 7:16PM
First Apple and now Amazon have the nerve to disappoint analysts. Time to fire everybody, sell off the assets, and put them into the history books of scorched earth capitalism.
Oct 25, 2011 6:55PM
We hope the whole country goes down the toilet, right where it belongs.
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