Amazon.com, Inc. (AMZN) Continues to Confound Critics

Page 1 of 2

Amazon.com, Inc. (NASDAQ:AMZN) recently released its quarterly results in which its sales increased by 22% to $21.3 billion, approximately $12 billion in North America and $9 billion overseas; but it missed analysts’ estimate by $900 million, and the market’s reaction was brutal, causing its shares to drop by 6% in the trading day. The company’s net income dropped by 45.2% to $97 million, EPS of $0.21, which was 7 cents below analysts’ estimates.

Amazon.com, Inc. (NASDAQ:AMZN)Its operating income of $405 million – up 56% from 2011– was nearly twice as large as analysts’ estimate of $212 million, and its operating margin in North America increased from 2.9% a year ago to 5%, which sent its stock soaring by as much as 12% in extended trading when investors looked deeper into the financials and realized the results weren’t as bad as the headline number suggested. Amazon has been focusing on establishing new warehouses to drive down costs, and it looks like the strategy is working. The other reason behind the increase in margins was the increase in third party sales on which Amazon earns a commission, far higher margin transactions. Third party sales rose from 36% to 39% of Amazon’s total sales year over year.

The Virtual Brick and Mortar Story

Overall, the numbers for the retail industry were more sanguine. Brick and mortar competition like Target Corporation (NYSE:TGT) saw no jump in December sales while Wal-Mart Stores, Inc. (NYSE:WMT)’s sales were up slightly. On the other hand, Amazon saw a 22% jump in sales over last year’s holiday while the industry targeted a 14% increase. The company, as always, is plowing profits back into the business’s infrastructure and establishing shipping hubs (20 created in 2012) to drive down its shipping costs. This puts it even more in direct competition with Wal-Mart, running leaner and taking advantage of the low cost of credit and cheap real estate prices to expand its physical presence. Amazon’s total shipping costs dropped from 5.4% of total sales in the same quarter last year to 4.5% in 2012.

For its fiscal fourth quarter, Amazon is expecting to reach sales of $16 billion and expects to earn operating income between negative $285 million and positive $65 million. Unlike Wal-Mart or Target, Amazon operates on razor thin margins and therefore cannot withstand even a slight decrease in sales.

Priming the Media Empire

Amazon’s Kindle Fire tablets were a huge hit in 2012. The Kindle itself is sold at cost, and Amazon relies on future eBook purchases to earn a profit. Although the company doesn’t reveal the actual sales numbers, it did say that eBook sales were up 70% from last year while traditional book sales were up just 5%. But the Kindle readers and Kindle Fire tablets are the tip of the total media strategy to take on not only Netflix, Inc. (NASDAQ:NFLX) but also merge the online store with traditional broadcasting of original material.

Enter Amazon Prime and AWS (Amazon Web Services). Amazon Prime now a total of 5 million subscribers, up from 2 million in 2009. Leveraging the annual fee as well as the massive increase in sales over non-prime users (130% more) into streaming is a strategy that has been evolving over the past two years since streaming video was first introduced. By partnering with leading players in the industry, such as CBS Corporation (NYSE:CBS), PBS, Universal, Sony and Warner Bros, Amazon has built a library of 12,000 movies and TV shows, versus to 20,000 with the market leader Netflix.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!