News Column

Amazon Profit Falls As it Ramps Up Distribution Centers

Jan 30, 2013

By Roger Yu

Robust holiday shopping drove's fourth-quarter sales higher as the bellwether online retailer continues its push to sell more digital media.

The company said Tuesday that fourth-quarter profit fell 45% to $97 million as it adds distribution centers and expands its hardware business. Its profit of 21 cents per share fell short of analysts' estimate of 27 cents, compiled by FactSet.

But its operating income, which is watched closely by Wall Street, rose 56% to $405 million in the quarter. Shares of Amazon rose sharply in after-hours trading on Tuesday, up 9% to $284.

"The bulk of focus (for analysts) is on operating income," says Scott Tilghman, an analyst at B. Riley & Co. "Growth was strong."

Its sales rose 22% to $21.3 billion in the quarter. A year ago, Amazon earned $177 million on revenue of $17.4 billion.

Encouraged by reports of strong holiday sales at retailers, investors have been bullish on Amazon in recent weeks. Its stock has risen 13% in the last six months even as several key business challenges -- low margins on many of its media products, competitive pressures on its hardware products and more states seeking to levy sales tax -- persist.

In a statement, Amazon CEO Jeff Bezos emphasized the pace of change at Amazon as it attempts to sell more digital products through its lineup of Kindle devices and focus less on physical goods such as books and CDs. The rate of sales growth for physical books in December -- up 5% -- was the lowest in its 17 years of business. "We're now seeing the transition we've been expecting," he said. "After five years, e-books is a multibillion-dollar category for us and growing fast -- up approximately 70% last year."

Its Kindle products continue to draw heavy consumer interest. The Kindle Fire tablet was the best-selling item on its website for the second year in a row. Meanwhile, Amazon's digital media catalog, including movies, books and apps, has grown to more than 23 million movies. At the end of 2011, it had 19 million.

Source: (c) Copyright 2013 USA TODAY, a division of Gannett Co. Inc.