SEATTLE – Shares of Amazon.com Inc. (AMZN) sank more than 14 percent Thursday after the company reported a sharp jump in fourth-quarter earnings but still fell short of Wall Street expectations amid what analysts say is a market that is becoming increasingly ferocious for the Internet retailing giant.
"The fact is, Amazon is really facing a very difficult environment in the competitive landscape, and they're not acknowledging it," said Safa Rashtchy, an analyst with Piper Jaffray.
He said a big concern is that it appears the company increased spending in areas such as marketing and new technology merely to keep pace with other online merchants — not beat them. Company executives would not comment on competition.
But Mark Mahaney, an analyst with American Technology Research (search), said in the long run such costs were necessary, especially in areas such as search technology.
"Amazon has almost always been at the cutting edge of the e-commerce technology (search), and they need to keep spending in order to stay there," he said.
For the fourth quarter ended Dec. 31, Seattle-based Amazon reported earnings of $346.7 million or 82 cents per share, compared with earnings of $73.1 million or 17 cents per share in the same period a year earlier.
The company benefited from a $244 million one-time tax gain. Without that benefit, it would have earned just 24 cents per share.
The income report was released after markets closed Wednesday. Amazon.com Inc. shares fell $6.13, or 14.6 percent, to close at $35.75 in Thursday trading, leaving Amazon shares near a 52-week low of $33 set on Oct. 22 after the company reported third-quarter results that disappointed investors.
Chief Financial Officer Tom Szkutak said the tax gain was from losses the company incurred in previous years, and he told reporters in a conference call that he expects the company to continue to record such one-time benefits in coming quarters.
Revenue was $2.54 billion, up 30 percent from $1.95 billion in the same period last year. But the revenue figure included an $85 million benefit from favorable foreign exchange rates. Without that gain, revenue would have risen just 26 percent.
Pro-forma profits, which exclude stock-based compensation, operating expenses and other items, were $394 million or 93 cents per share, up from $125 million or 29 cents per share in the fourth quarter of 2003. But without the tax benefit, the company said it would have had pro forma earnings of 35 cents per share.
Based on those numbers, Amazon.com fell short of the expectations of analysts polled by Thomson First Call, who were expecting income of 40 cents per share. Estimates had varied widely, from 32 cents per share to 46 cents per share.
Nevertheless, Szkutak said the company was pleased with its strong revenue growth in the fourth quarter, usually Amazon's biggest because of holiday sales.
For the current first quarter, Amazon said it expects net sales of between $1.8 billion and $1.95 billion. For all of 2005, it is projecting net sales of between $8.05 billion and $8.65 billion.
The company does not provide net income forecasts.
Amazon also announced Wednesday that it would begin offering its customers the option of paying a flat annual fee of $79 for unlimited free two-day shipping on orders. The deal also would let customers pay just $3.99 for overnight shipping.
In a letter to customers posted on Amazon's Web site Wednesday, Chief Executive Jeff Bezos (search) said he expected the new program to be expensive for Amazon in the short term but hoped it would build greater long-term loyalty.
Szkutak noted that the new service is "perhaps the most expensive thing we've done" since the company began offering free shipping on purchases of $25 or more. Amazon lost $197 million on shipping alone last year.
Rashtchy said it was too early to tell whether the promotion would help the company. But he said there was potential if customers embraced it — and it kept them shopping at Amazon rather than going to competitors.
For all of 2004, Amazon reported earnings of $588.5 million or $1.39 per share on revenue of $6.92 billion. That compares with 2003 earnings of $35 million or 8 cents per share on revenue of $5.26 billion.