But Amazon posted a net loss as it spent heavily on Kindle and infrastructure.
Mark Brohan , Research Director
It was another banner year for sales growth for Amazon.com. But in 2012 the world’s biggest online retailer swung from a healthy profit to a nearly $40 million loss as it continues to invest in its Kindle business and global infrastructure.
For the year ended Dec. 31, Amazon, No. 1 in the 2012 Internet Retailer Top 500, reported:
Amazon continues to spend heavily on its Kindle electronic reader and tablet business and on developing more digital content, the retailer says.
“We’re now seeing the transition we’ve been expecting,” says CEO Jeff Bezos. “After five years, e-books is a multibillion dollar category for us and growing fast–up approximately 70% last year. In contrast, our physical book sales experienced the lowest December growth rate in our 17 years as a bookseller, up just 5%.”
For the fourth quarter:
For the first quarter of 2013 Amazon expects sales to range from $15 billion to $16.6 billion and for operating income to range from a loss of $285 million to income of $65 million.
Amazon’s fourth quarter sales came in below the forecast of some Amazon stock analysts and below the top end of Amazon’s guidance, $22.75 billion. But even though Amazon failed to reach the high end of its Q4 sales projection, the price of Amazon’s stock increased about 10% after it released final earnings on Tuesday and as of mid-afternoon on Wednesday was trading up about 5% at about $277.30 per share.
The company’s stock is trading higher in part because Amazon’s year-end numbers show the retailer continues to improve its profit margins, says Colin Sebastian, an equity analyst who follows Amazon for Robert W. Baird.
Contributing to the improved profit margins, Sebastian says, is the growing share of Amazon’s revenue that comes from the commission it charges to other merchants that sell on Amazon.com. The growth rate of unit sales by other merchants, which Amazon refers to as third parties, increased by more than 40% in the fourth quarter compared to the prior-year quarter, while total unit sales increased only 32%, Amazon chief financial officer Thomas Szkutak told analysts after the earnings release. But when asked if that shift contributed to improved profit margin, he replied that Amazon’s pricing policies are meant to be “agnostic” in terms of its own sales versus those of marketplace sellers.
Sebastian also attributed Amazon’s improved profit margins more consumers buying digital content instead of printed books and other physical media, and a payback from Amazon’s investment in Amazon Web Services, which provides data storage and computing capacity to other companies.
“From a product perspective, Amazon margins are a benefiting from the shift to third-party unit sales, digital content sales, and strong growth in Amazon Web Services,” Sebastian writes in a new Amazon market report. “Segment margins are showing continued signs of improvement while International segment margins appear to be stabilizing.”
While net income declined, Amazon’s Q4 operating income of $405 million was well above the guidance the company issued in October of operating income to range from a gain of $310 million to a loss of $490 million.