The Cloud

Amazon Earnings Dash Investors’ High Hopes

The stock dives as fourth-quarter profits come in below expectations, but analysts say the outlook for Amazon is still positive.
Katie Kuehner-HebertJanuary 29, 2016

Amazon shares dropped more than 7% on Friday after the company, coming off a year of meteoric growth, reported  fourth-quarter earnings that were well below analysts’ expectations.

Amazon’s fourth-quarter revenue rose 22%, to $35.75 billion, and net income more than doubled, to $482 million, or $1 a share. A group of analysts polled by Yahoo expected an average profit of $1.56 a share and revenue of $35.93 billion.

Investors, who had pushed Amazon shares up 100% last year, sent the stock up another $52 to $635 in regular trading Thursday, adding about $24 billion in market value. After the fourth-quarter numbers  were released, the stock gave back almost that entire gain on Friday, closing at $587.

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Analysts said the numbers, momentarily disappointing as they may have been, did not dent the positive outlook for Amazon.

“This was more of an expectations correction than a fundamentals correction,” Mark Mahaney, an analyst with RBC Capital Markets, told the New York Times. “There’s nothing in the numbers that would mark a dramatic change in Amazon’s growth or profit profile.”

The Verge noted that revenue fell short in large part to lower holiday sales and the company’s aggressive shipping and delivery moves, including the Prime Now one-hour delivery service.

Amazon’s computing platform subsidiary, Amazon Web Services, met expectations, with operating income from that unit rising to $687 million in the quarter from $240 million in 2014. AWS will soon be a $10 billion business, company executives noted in a conference call with analysts.

“Amazon has proved time and again that the razor-thin margins of its online retail business are not where it intends to make money,” The Verge said. “By leasing computing power to companies as large as Netflix and Spotify, Amazon has emerged as the central rival to Microsoft’s Azure platform in the cloud computing space.”

AWS, whose margins rose from 17% in the first quarter of 2015 to 29% this past quarter, now generates nearly as much profit as Amazon’s entire North American e-commerce division.