Despite rising sales, Amazon, the largest Internet retailer, reported a 57 percent decline in its fourth-quarter profit due to heavy spending.
The Seattle-based company also said it may fall short of analysts' earnings estimates for the current quarter as it continues to invest in long-term initiatives, such as the Kindle Fire tablet and Amazon Prime, aimed at enticing customers to buy more and exclusively on its site.
Net income fell to $177 million from $416 million a year earlier. Revenue rose 35% to $17.4 billion. But revenue fell short of analysts' estimates. The stock closed Tuesday at $194.44, but fell as much as 11 percent in after-hours trading.
Amazon's revenue growth was clipped as more customers flocked to items sold by other vendors on its site, Colin Sebastian, an analyst at Robert W. Baird, told Bloomberg. Millions of third-party sellers now represent 36 percent of products sold, Amazon says. "Whenever there's a mix-shift toward third party, it helps margins, but it reduces revenue" growth, he says.
Heavy spending ate into net income. Much of the $17.2 billion Amazon spent for operations during the quarter, a 38 percent year-over-year rise, was to pay for shipping, to subsidize the production of Kindle Fire and to build fulfillment centers.
Amazon's growth strategy involves enticing customers to buy its Kindle tablets and e-readers at low cost so that they'll be compelled to buy books, songs and movies from the company. The company is also heavily promoting membership in Amazon Prime, which costs $79 a year and includes free shipping and free streaming of selected TV shows and movies. Amazon is betting that customers will buy more if they're not concerned about shipping costs.
But some investors aren't convinced the bet will pay off. Sales of books and DVDs rose 14.8 percent to $6 billion. But Amazon stock has dropped 12.6 percent in the last six months.
Still, the Kindle products were popular last quarter. Amazon didn't disclose the number sold but said sales of Kindle Fire and e-reader devices rose 177 percent in the nine-week holiday period.
Amazon estimates it may post an operating loss this quarter and generate $12 billion to $13.4 billion in revenue, below analysts' estimates of $13.42 billion in revenue.
For the year, Amazon's sales rose 41% to $48.1 billion. Its 2011 net income fell 45 percent to $631 million.
