The Wall Street Journal-20080131-Amazon Offers Upbeat Revenue Forecast- Shares Fall After Hours On Letdown Over View For Operating Income
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Amazon.com Inc. offered a robust revenue forecast for 2008 and reported fourth-quarter earnings that more than doubled on a 42% increase in revenue, damping concerns about waning U.S. consumer demand.
But the Seattle Web retailer's forecast for operating income for the year was below expectations, raising questions about the company's profit prospects. That sent Amazon's shares down about 13% in after- hours trading to $64.89. In 4 p.m. Nasdaq Stock Market composite trading, Amazon's stock edged up 26 cents to $74.21.
Amid concerns over a possible U.S. recession, Wall Street has been looking for signs of whether consumer demand is holding up. Amazon, a leading Internet retailer that sells books, electronics and other items through its Web site, is viewed as a bellwether for online consumer spending. As a result, Amazon's strong results fueled by sales in its holiday quarter helped assuage consumer-spending concerns.
"This is a stellar quarter, in light of all the consumer-spending worries," said Jeetil Patel, an analyst at Deutsche Bank Securities Inc., which has conducted noninvestment banking business with Amazon in the past year. But he added that the company's "profit margins are lighter than expected," which means Amazon is reinvesting profits back into its business.
Amazon forecast 2008 operating income of between $785 million and $985 million, below the operating-income midpoint of $1.22 billion expected by Citigroup Global Markets. In a research note, Citigroup analyst Mark Mahaney also noted that the company's operating margin of 5.8% for the fourth quarter was lower than his estimate of 6.5%.
Tom Szkutak, Amazon's chief financial officer, declined to discuss how potentially slowing consumer demand might affect the company's business. "Our business is fine," he said on a conference call.
Amazon's 2008 profit margins could be damped by its increased spending on capital expenditures. Mr. Szkutak said the company expects $300 million in capital expenditures, up from the $224 million in 2007. In the past, the company has spent heavily on new growth initiatives such as its digital music store and electronic book reader, crimping profits. Such spending recently decreased, allowing margins to expand, but that cycle may now be ending.
Strong sales in categories like toys and videogames, jewelry, apparel and its international unit helped spur Amazon's performance in the fourth quarter, typically one of its stronger seasons because of holiday buying. International sales were up 46% to $2.59 billion, while North American sales were up 40% to $3.08 billion.
Amazon's third-party merchant program, which lets people sell on its site, also helped boost results. Through the business, which accounted for 26% of the company's total units sold, Amazon receives a commission for each sale without being saddled with the product and its shipping costs.
