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Amazon CEO Jeff Bezos with Kindle Fire tablet  (Source: minnpost.com)
Analysts place blame for profit drop on increased spending on new products like the Kindle Fire

Amazon released its fourth-quarter earnings from 2011 today, showing off its massive holiday success with e-readers and its Kindle Fire tablet, yet still missing previous estimates.

Amazon reported a 35 percent increase in net sales from $12.95 billion in Q4 2010 to $17.43 billion in Q4 2011. Despite the increase, the company missed Bloomberg analyst expectations of $18.3 billion.

Amazon also saw a 58 percent drop in quarterly profit from $416 million, or 91 cents per share, in Q4 2010 to $177 million, or 38 cents per share, in Q4 2011.

Amazon reported $260 million in Q4 2011 operating income, down from $474 million in Q4 2010. Operating cash flow increased 12 percent to $3.90 billion, up from $3.50 billion in 2010, and free cash flow fell 17 percent to $2.09 billion from $2.52 billion in 2010.

The online retailer ended Q4 2011 with 56,200 employees, which is a 67 percent increase from Q4 2010.

For the full-year 2011, net sales jumped 41 percent from $34.20 billion in 2010 to $48.08 billion in 2011. Operating income fell 39 percent to $862 million from $1.41 billion in 2010, and net income dropped 45 percent to $631 million ($1.37 per share) from $1.15 billion ($2.53 per share) in 2010.

While Amazon's first entry into the tablet arena, the Kindle Fire, was wildly successful with both Fire and other Kindle e-reader unit sales increasing 177 percent during the nine-week holiday period ending December 31, 2011 from the same period in 2010, the products were clearly slow to pay off. Increased spending on the Kindle Fire as well as other new products and facilities put a dent in the company's profits.

“We are grateful to the millions of customers who purchased the Kindle Fire and Kindle e-reader devices this holiday season, making Kindle our bestselling product across both the U.S. and Europe,” said Jeff Bezos, founder and CEO of Amazon.com. “Our millions of third-party sellers had a tremendous holiday season with 65% unit growth and now represent 36% of total units sold.”

Amazon predicts its Q1 2012 revenue to land between $12 billion and $13.4 billion with a $200 million operating loss and $100 million operating profit. Analysts were hoping for a Q1 2012 revenue of $13.41 billion.

Source: Amazon



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Kindle Fire
By Varun on 2/1/2012 12:06:47 PM , Rating: 2
I think the initial investment that they have made with the Kindle Fire is going to pay off for them quite nicely. Sure, they have a lower quarter of profits initially, but with the content lock-in that to date only Apple has been able to pull off, this could be a major cash cow for them in the future.




RE: Kindle Fire
By Just Tom on 2/1/2012 1:16:01 PM , Rating: 2
quote:
Sure, they have a lower quarter of profits initially, but with the content lock-in that to date only Apple has been able to pull off, this could be a major cash cow for them in the future.


What lock in? I can use kindle files on all my equipment and I don't own a Kindle. Am I missing something unique to the Fire?


RE: Kindle Fire
By Varun on 2/1/2012 1:30:11 PM , Rating: 3
I meant that it makes it easier for Amazon to sell products to Fire owners - Fire owners are likely going to use Amazon as their provider for video, music, e-books, and shopping, because it will be dead simple from the device.

All other tablets just don't have the content ecosystem. Samsung can make a device as nice as it wants, but Samsung has nothing to go with it. Samsung needs to make their money on the device up front, where as Amazon can make little to no money on the consumption device because they can recoup those costs with content later on.

I didn't mean Kindle books are locked to the Fire - I think Amazon has a great model with the Kindle software being on basically every platform. When DRM is non-restrictive like this, people seem to be OK with it (including me - I love my Kindle).


RE: Kindle Fire
By RamarC on 2/1/2012 4:07:02 PM , Rating: 2
kindle fire is more than books. the lock-in the OP speaks of is the extra "nickel" that amazon will make from every impulse magazine, audio book, movie, etc rental/buy made possible by fire owners.


RE: Kindle Fire
By Tony Swash on 2/1/2012 2:56:20 PM , Rating: 2
quote:
I think the initial investment that they have made with the Kindle Fire is going to pay off for them quite nicely. Sure, they have a lower quarter of profits initially, but with the content lock-in that to date only Apple has been able to pull off, this could be a major cash cow for them in the future.


You may be right but Amazon has been playing this game for a long time, building scale and volume on razor thin margins, and maybe that will pay off handsomely if Amazon become some sort of super monopoly of online shopping at some point in the future. But $260 million operating income on $17.43 billion seems awfully thin to me. Amazon is already a huge presence and accounts for a very significant slice of online shopping but it's business model is still not generating anything other than tiny profits (compared to turnover). Maybe if they can undercut and kill all real world retailers and move everything online and become the place to shop for everything they can make more profits but I am far from convinced that they can do that.

It's an interesting contrast between business strategies: Apple driving down content prices to build a content ecosystem to sell hardware versus Amazon driving down content prices to achieve scale, selling hardware at a loss and but making all their profits on content.


RE: Kindle Fire
By Varun on 2/1/2012 3:45:48 PM , Rating: 2
I'll agree that a 1% profit is pretty slim, but we can't compare Amazon completely to Apple. Amazon is a retailer of goods, and the margins just are not as high as they are in the Apple world (or Microsoft or the other tech giants).

Walmart, for instance, had profits of 3B on revenue of 109B. 3B is a lot of money, but that is only about 3% profit. Amazon's previous quarter (going off the numbers in the article) was 3.2% which I think would be what they are aiming for.


RE: Kindle Fire
By TakinYourPoints on 2/2/2012 2:59:05 AM , Rating: 2
Exactly, Amazon cannot be compared with Apple, they are in two completely different businesses, retail and technology. As a result, investors shouldn't expect Amazon to ever be as profitable as any of the other major techs.

Amazon's market valuation kind of confuses me, it is being treated like a large cap tech but they don't generate anything close to a tech's profits. It has had an insanely high PE of 120-140 for ages now, and I wonder when investors are expecting the money to start rolling in to justify its valuation.

Amateurs on tech boards say AAPL is a high flier but it has a very low PE of around 12, very close to Microsoft's. The price may be high but they have the profits to more than justify it.

Anyway, by a retailer's standards, which is the business Amazon is in, they're doing well, and the low-to-zero margin niche that the Kindle Fire is in actually makes sense for them.


RE: Kindle Fire
By NellyFromMA on 2/2/2012 1:13:32 PM , Rating: 2
Have you ever heard of Amazon EC2? Amazon's business is anything served. The shift in their business model was quite genious and expect to hear more and more about this company going forward.

Whoever's running the ship over there had tremendous foresight.


RE: Kindle Fire
By vision33r on 2/2/2012 12:46:58 PM , Rating: 2
Yet, Apple also made huge R&D commitment to the development of the iPad and didn't hurt their earnings one bit.

The problem with Amazon is in the long term, is this a sound investment? A company always making low single digit profit margins?


Stupid analysts
By Ytsejamer1 on 2/1/2012 12:47:06 PM , Rating: 2
They make things sound so dire when a company didn't make AS MUCH PROFIT as the quarter before. Remember...they didn't lose money, they made it...just not as much as "analysts" thought they would. Not sure how everyone can expect more and more and more and more profit...every quarter. Stupid.

Amazon will be around for a long while...it's a good company with great prices and even better service. (Capt Obvious reporting for duty! SIR!)




RE: Stupid analysts
By jimbojimbo on 2/1/2012 2:09:29 PM , Rating: 1
Yeah, the net sales only increased 35% but that's not good enough for them, they wanted 41%. To that I say I expect your income to increase 41% and if you don't make it you're a shittty useless person. Dumb analysts ruining things all the time.


By GruntboyX on 2/1/2012 12:59:44 PM , Rating: 2
This looks like Step 1 in Amazon taking Google's Ball and going home.

#1 Android tablet. Significant enough that Android developers have to consider Amazon's requirements for App store submission. To make matters worse this further fragments android.

Although I think we are quarters away from seeing it. I wouldn't be shocked if a Amazon phone was announced at some point.




Amazon Revenue
By Lifted on 2/1/2012 2:28:02 PM , Rating: 2
Does anyone know if Amazon counts sales for "Amazon Stores" as Amazon revenue, and then counting what they pay the store (minus Amazon's commission) as an expense? Or do they only count the fees they charge those stores as revenue?




Thank you, analysts
By Netscorer on 2/1/2012 6:31:54 PM , Rating: 2
Because of your negative attitude towards one of the best companies and the best e-Company in the world, I was able to snag stock at nice 8% discount. If you look at Amazon margins and try to compare them to Apple, you are completely in the wrong. Amazon should be compared to WalMart, as they use the same strategy minus capital investment in the retail stores. Amazon has already been the dominant player in the e-retailing world and now, with introduction of Kindle Fire they are taking on e-media industry. Books, movies, music, games - Amazon is going to be one of the leading retailers for all of this content for both physical and digital distribution channels.




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