Despite missing analyst estimates of fourth-quarter earnings by 7 cents per share, shares of the Seattle-based company rose as much as 9 percent Wednesday before easing back to close at $272.76, up $12.41, valuing the company at a near-record $123.8 billion.
Among the reasons: Analysts liked its ability to rapidly increase sales, albeit at very thin margins, especially in the competitive U.S. market; new demand for Kindle Fire tablets; and the explosive growth in its Amazon Web Services business, a provider of cloud services to companies, including Netflix Inc. (NASDAQ:NFLX), as well as government agencies, including the National Institutes of Health.
One reason for Amazon's loss was its heavy investment in new warehouses, computers, personnel and relaince on one-day shipping. That sent up operating costs significantly, 17 percent or about $2.3 billion, in the fourth quarter alone.
At Topeka Capital, analyst Victor Anthony repeated a “buy” rating on the shares with a price target of $360, hailing the company’s “structural shift” and noting it’s “a must-own stock for growth-focused portfolios.”
Meanwhile, Brian Pitz at Jefferies also repeated his “buy” rating and boosted a price target to $330 from $300, noting the company’s operating margin has been better than expected for five consecutive quarters.
As well, increased sales of services, including Prime entertainment for Kindle Fire users, as well as Web services, doesn’t incur shipping costs, which help lower margins in the e-retailer’s diapers-to-dishwashers retail arm, Pitz said. The net shipping cost last quarter declined to 4.5 percent, the lowest in five years.
Amazon reported net income fell 45 percent to $97 million, or 21 cents per share, in the fourth quarter, from $177 million, or 38 cents, a year earlier. Revenue jumped 22 percent to $21.27 billion, from $17.43 billion in the earlier period.
For the year, Amazon reported a net loss of $39 million, or 9 cents per share, reversing prior-year net income of $631 million, or $1.37 per share, as revenue rose 27 percent to a record $61.09 billion.
While only about 13 percent of the estimated revenue for Wal-Mart Stores Inc. (NYSE:WMT), the No. 1 retailer, for the fiscal year ending Friday, Amazon’s revenue is more than double the $27.6 billion analysts expect for Macy’s Inc. (NYSE:M), the nation’s oldest retail chain.
The bullish performance sent expectations soaring that CEO Jeff Bezos, 49, and his team will keep executing their strategy. For the current year, analysts surveyed by Thomson Reuters boosted their estimates for earnings as high as $825 million, or $1.70 per share, as revenue leaps another 30 percent to $79.28 billion.
To be sure, Amazon didn’t disclose several important numbers, such as the number of Kindle Fires shipped, as well as its Amazon Web Services numbers. CFO Thomas Szkutak declined to answer questions about them when he spoke with analysts Wednesday night.
The company said its four most popular items were Kindle Fire HD units, Kindle Fires, Kindle Paperwhite and Kindle. By contrast, Apple Inc. (NASDAQ:AAPL), the most valuable technology company, said it sold a record 22.86 million iPads last quarter.
Analysts at market researchers such as Forrester (NASDAQ:FORR) are expected to publish numbers soon.
Amazon Web Services revenue, which now serves the company and customers worldwide, now provides cloud services from Germany’s SAP (NYSE:SAP), which also announced a new collaboration with International Business Machines Corp. (NYSE:IBM), the No. 2 computer company, this week.
Analysts such as Pitz said its performance is lumped under the company’s “other” revenue category, or $769 million in the fourth quarter and $2.52 billion for the year. That was respective growth of 68 and 64 percent.
With a run rate exceeding $2.5 billion, Amazon’s Internet unit is now larger than cloud services providers Salesforce.com (NYSE:CRM) or Equinix Inc. (NASDAQ:EQIX) on an annual basis.