SEATTLE - This year isn't looking quite as sweet for Amazon.com shareholders as 2007. Despite a possible recession in the U.S. economy, the Web retailer said it expects sales to rise briskly again in 2008. But the gains won't translate as readily to bottom-line growth.
"A lot of old Amazon bears are going to be growling," said Tim Boyd, an analyst at American Technology Research.
And growl they are. Shares of Amazon.com Inc. plunged $8.92, or 12 percent, to $65.29 in extended trading Wednesday.
Amazon had revealed after the closing bell that its holiday-quarter profit more than doubled on revenue that jumped 42 percent. But while it forecast stellar sales growth in the coming year and executives shrugged off concerns about the economy, its operating income guidance fell short of what Wall Street was expecting.
Boyd said international spending could carry Amazon through a slowdown in U.S. consumer spending. However, based on the company's lackluster profit guidance, the analyst said Amazon appears poised to spend more and pocket less as it expands and fights off competition.
Some of the retailer's cash may be spent fending off eBay Inc., a competitor for Amazon's third-party seller business, Boyd said.
He also said Amazon's digital music business may be losing money in this early phase. Amazon would not say how its MP3 store performed financially.
In 2005 and 2006, investors and analysts were similarly unhappy with near-term results as Amazon spent heavily on technology and content. When spending slowed and margins rose last year, the dot-com returned to favor and shares climbed. Now, said Boyd, it seems Amazon has returned to investment mode.
Amazon matched Wall Street's expectations Wednesday when it reported its fourth-quarter profit more than doubled to $207 million, or 48 cents per share, from $98 million, or 23 cents per share, in the same period last year.
Strong domestic and international sales in all categories drove revenue up 42 percent to $5.67 billion, topping analysts' average prediction of $5.37 billion in revenue, according to a Thomson Financial poll.
Changes in foreign exchange rates lifted sales by $195 million.
"This company has just done an unbelievable job," Boyd said. "They're obviously just eating eBay's lunch. They're eating every one of their competitors' lunches."
Amazon's gross margin was lower than in the year-ago quarter. In a conference call, Chief Financial Officer Tom Szkutak said the company's entrance into new product categories eats into profits. That's because Amazon sells at competitive prices even before it has amassed the sales volume and business relationships necessary to command lower wholesale prices.
The retailer's margins also take a hit as the number of people who pay up front for a year of free express shipping rises, as it did in 2007, and as the mix of products sold on the site shifts.
For all of 2007, Amazon said it earned $476 million, or $1.12 per share, a 150 percent increase over the previous year. Annual sales grew 39 percent to $14.84 billion.
The midpoint of Amazon's operating profit outlook for the quarter and the year fell short of what Wall Street is currently looking for, even as sales forecasts topped analysts' view.
For the current quarter, Amazon forecast between $3.95 billion and $4.15 billion in sales. For the full year, it predicted revenue of $18.75 billion to $19.75 billion.
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