Amazon's Q4 profits dip 58 percent

Amazon's Q4 profits dip 58 percent

Summary: Online retail giant's profits tumble despite strong Kindle sales due to increasing operating costs in fourth quarter, which exceeded increase in revenue over same period.

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Despite clocking strong sales for its Kindle devices, Amazon.com's fourth quarter earnings report missed expectations and profits dipped due to increased operating expenses incurred in its business expansion.

According to a company statement Tuesday, Amazon's revenue increased 35 percent to US$17.4 billion in the fourth quarter, ended Dec. 31, 2011, compared to almost US$13 billion a year ago. Fourth-quarter profit plunged 58 percent to US$177 million, compared to US$416 million in 2010.

For the full year of 2011, revenue increased 41 percent to US$48.1 billion compared to US$34.2 billion last year, while profits decreased 45 percent to US$631 million in 2011, compared to almost US$1.2 billion in the same period.

According to Amazon, during the nine-week holiday period ended Dec. 31, 2011, Kindle unit sales which included the Kindle Fire tablet and e-readers more than doubled by 177 percent over the same period last year. The company did not reveal exact sales figures.

"We are grateful to the millions of customers who purchased the Kindle Fire and Kindle e-reader devices this holiday season, making Kindle our bestselling product across both the U.S. and Europe," said Jeff Bezos, Amazon founder and CEO, in the statement.

The company attributed the significant slump in profits, despite strong sales, to its increased operating costs incurred when it aggressively expanded its business. Amazon's operating expenses rose 38 percent in the fourth quarter from a year ago, a figure which exceeded its 35 percent revenue increase.

Amazon's fourth-quarter earnings were below Wall Street expectations which had estimated revenue of US$18.3 billion, according to AllThingsD.

The e-commerce site said it foresees first-quarter operating results ranging from a loss of US$200 million to a profit of US$100 million, which is also below Wall Street expectations, according to Reuters. It added that Amazon's first-quarter revenue forecast of US$12 billion to US$13.4 billion missed Wall Street estimates of US$13.4 billion.

The news wire said the first-quarter outlook was a sign Amazon might continue with its high operating costs. The report cited a conference call during which Amazon CFO Tom Szkutak said the "wide range reflects the investments that we're making". "We have a lot of opportunities to invest in... You're seeing more of that in Q1," he added.

Reuters pointed out that Amazon's spending were focused in three main areas: fulfillment centers to support its online retail busines; content for video streaming and other media business; and infrastructure for its cloud services.

Topics: Software, Apps, Browser, CXO, Cloud, E-Commerce, Hardware, IT Employment

Jamie Yap

About Jamie Yap

Jamie writes about technology, business and the most obvious intersection of the two that is software. Other variegated topics include--in one form or other--cloud, Web 2.0, apps, data, analytics, mobile, services, and the three Es: enterprises, executives and entrepreneurs. In a previous life, she was a writer covering a different but equally serious business called show business.

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