Amazon, purveyor of fine mini-tablets and concrete mix and other sundries, announced today how much money it made last year and where and why. The only problem? Like most earnings reports, it’s completely indecipherable. Let’s try to break down what happened and why it matters.
Here are some relevant quotes, and what they basically mean:
Net sales increased 35% to $17.43 billion in the fourth quarter, compared with $US12.95 billion in fourth quarter 2010. Excluding the $US101 million favourable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales would have grown 34% compared with fourth quarter 2010.
Wow, $US17.3 billion. That’s a lot of money, right? Wrong! Of course it’s wrong, why else would I set you up like that? Amazon took in $US17.43 billion of your money in the last three months, but in the world of earnings reports, all that matters is how you performed compared to how investment analysts magically predicted you would perform, since those predictions have been built into your stock price.
In this case, the average analyst revenue estimate was around $US18 billion. So as far as Jim Bob Analyst is concerned, Amazon underperformed by nearly $US600 million — even more if you take into account the hundred million bucks they lucked into because of currency fluctuations.
Net income decreased 58% to $US177 million in the fourth quarter, or $US0.38 per diluted share, compared with net income of $US416 million, or $US0.91 per diluted share, in fourth quarter 2010.
So of that $US17.43 billion that went into Amazon’s coffers, they actually get to keep $US177 million of it. That’s 58 per cent less $$$ than they got to keep a year ago, which is bad, right? Well, sort of. Analysts had been expecting even worse net income than that. Because it’s an expectations game, this is actually a minor, sad victory in an otherwise disappointing quarter.
And yes, I just said that $US17.6 billion revenue and $US177 million profit was disappointing. It is! The stock’s down 8 per cent already.
“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, founder and CEO of Amazon.com. “Our millions of third-party sellers had a tremendous holiday season with 65% unit growth and now represent 36% of total units sold.”
Translation: Dear media, please talk about Kindles instead of all that money we didn’t make.
During the nine-week holiday period ending December 31, 2011, Kindle unit sales, including both the Kindle Fire and e-reader devices, increased 177% over the same period last year.
We are still not going to tell you how many of these goddamn things we sold, partly because the mystery is cute and partly because it’s definitely not in the same ballpark as the iPad so why suffer in the comparison?
Kindle Fire is the #1 bestselling, most gifted, and most wished for product across the millions of items available on Amazon.com since its introduction 17 weeks ago.
Amazon Appstore for Android customers nearly tripled in the fourth quarter compared to the third quarter. In addition, customers downloaded more apps from the Amazon Appstore during the fourth quarter than they had during all previous quarters combined.
To be honest, this number seems surprisingly low. The Kindle Fire came out in Q4, and if it really did sell millions and millions I would’ve expected it to drive Amazon Appstore sales much more aggressively. Who used it before Kindle Fire, other than maybe the occasional daily app deal?
Net sales are expected to be between $US12.0 billion and $US13.4 billion, or to grow between 22% and 36% compared with first quarter 2011.
Another reason Amazon’s stock is down: Analysts had been projecting $US13.4 billion revenue this current quarter. By saying it expects to come in below that, Amazon’s signaling that the road might not be as smooth as has been assumed.
The biggest thing to remember, though, is that Amazon spent $US17.4 billion on its own business in the last three months alone. Much of that went towards the new Kindle line, Fire included. And while the numbers are clouded behind vague growth rates, there’s no denying the fact that Amazon sold millions of devices in the last three months, which means it has millions more people hanging out in its ecosystem, buying the books and apps and movies that make Amazon its real money, and will continue to for years to come.