Despite recovered margins, Amazon disappoints in Q4 with revenue of $21.27B and EPS of $0.21

Today Amazon announced its fourth quarter 2012 financial performance, reporting revenue of $21.27 billion and earnings per share of $0.21. Analysts had anticipated revenue of $22.25 billion to generate earnings per share of $0.29.

Net income for the quarter decreased to $97 million, down 45% on a year over year basis. For the full year, net sales were up 27%, and for the final quarter of the year, 22%.

Net sales for the first quarter of 2013 are expected to be between $15 billion and $16.6 billion. Those figures are down from the last quarter of 2012, as they will not include a holiday sales crush. Still, the represent a rise of 14% to 26% compared to their year ago quarter.

Amazon’ operating margin (operating income divided by revenue), measured as a percentage of its worldwide net sales, was negative 0.2% in the third quarter of 2012, and a slim 1.5% in the fourth quarter of 2011. For its most recent quarter, Amazon’s margins were 1.9%. For perspective, that is Amazon’s strongest margin performance in the last 15 months.

At the end of the year, Amazon had cash and equivalents $8.084 billion. That figure is up from $5.269 billion in the year ago quarter.

For the full year of 2012, ebook sales were up 70%, and had total revenues in the billions, Amazon noted. Physical book sales, by comparison, suffered their lowest holiday growth rate in 17 years. Amazon’s long investments in digital reading have paid off, it would seem.

On the same topic, Amazon announced that a number of its indie-published authors have seen tremendous success selling their titles on the Kindle Digital Publishing platform:

Amazon announced that 23 KDP authors each sold over 250,000 copies of their books in 2012, and that over 500 KDP Select books have reached the top 100 Kindle best seller lists around the world.

On the day’s trading, Amazon’s stock was broadly down, slipping around 3%. In after hours trading, the company is was down, but has recovered and is now up 7%. For fun, total shares of firm’s stock in the market eked up a mere 2 million, to 470 million in the year. That represents a mere 0.4% increase.

The company appears to be performing strongly in after-hours trading due to the strength of its margins, which recovered during the exceptionally difficult holiday sales season.

What follows is Amazon’s earnings release:

SEATTLE–(BUSINESS WIRE)–Amazon.com, Inc. (NASDAQ:AMZN) today announced financial results for its fourth quarter ended December 31, 2012.

Operating cash flow increased 7% to $4.18 billion for the trailing twelve months, compared with $3.90 billion for the trailing twelve months ended December 31, 2011. Free cash flow decreased 81% to $395 million for the trailing twelve months, compared with $2.09 billion for the trailing twelve months ended December 31, 2011. Free cash flow for the trailing twelve months ended December 31, 2012 includes fourth quarter cash outflows for purchases of corporate office space and property in Seattle, Washington, of $1.4 billion.

Common shares outstanding plus shares underlying stock-based awards totaled 470 million on December 31, 2012, compared with 468 million one year ago.

Net sales increased 22% to $21.27 billion in the fourth quarter, compared with $17.43 billion in fourth quarter 2011. Excluding the $178 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales grew 23% compared with fourth quarter 2011.

Operating income increased 56% to $405 million in the fourth quarter, compared with $260 million in fourth quarter 2011. The favorable impact from year-over-year changes in foreign exchange rates throughout the quarter on operating income was $2 million.

Net income decreased 45% to $97 million in the fourth quarter, or $0.21 per diluted share, compared with $177 million, or $0.38 per diluted share, in fourth quarter 2011.

“We’re now seeing the transition we’ve been expecting,” said Jeff Bezos, founder and CEO of Amazon.com. “After 5 years, eBooks is a multi-billion dollar category for us and growing fast – up approximately 70% last year. In contrast, our physical book sales experienced the lowest December growth rate in our 17 years as a book seller, up just 5%. We’re excited and very grateful to our customers for their response to Kindle and our ever expanding ecosystem and selection.”

Full Year 2012

Net sales increased 27% to $61.09 billion, compared with $48.08 billion in 2011. Excluding the $854 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the year, net sales grew 29% compared with 2011.

Operating income decreased 22% to $676 million, compared with $862 million in 2011. The unfavorable impact from year-over-year changes in foreign exchange rates throughout the year on operating income was $14 million.

Net loss was $39 million, or $0.09 per diluted share, compared with net income of $631 million, or $1.37 per diluted share, in 2011.

Highlights

• For the second year in a row, Amazon’s tablet was the most popular item for customers – Kindle Fire HD continued its run as the #1 best-selling, most gifted, and most wished for product across the millions of items available on Amazon worldwide. At year-end, Kindle Fire HD, Kindle Fire, Kindle Paperwhite and Kindle held the top four spots on the Amazon worldwide best seller charts since launch.
• Amazon announced the launch of AutoRip, a new service that gives customers free MP3 versions of CDs they purchase from Amazon. Additionally, customers who have purchased AutoRip CDs at any time since Amazon first opened its Music Store in 1998 will find MP3 versions of those albums in their Cloud Player libraries – also automatically and for free.
• Amazon introduced Kindle FreeTime Unlimited, bringing together for the first time all of the types of content kids and parents love – books, games, educational apps, movies and TV shows – into one simple, unlimited, easy-to-use service for kids ages 3-8.
• Amazon’s digital media selection has grown to over 23 million movies, TV shows, songs, magazines, books, audiobooks, and popular apps and games in 2012, an increase from 19 million at year-end 2011.
• Amazon.com announced new licensing agreements with Turner Broadcasting, Warner Bros. Domestic Television Distribution, and A+E Networks, for popular television series including Falling Skies, The Closer, Pawn Stars, Storage Wars, and Dance Moms, expanding its catalog of title offerings for Prime Instant Video to more than 36,000 movies and television episodes.
• Amazon launched Kindle Stores for Brazil, Canada, China, and Japan, with a large selection of the most popular books, including thousands of local-language books.
• Amazon announced that 23 KDP authors each sold over 250,000 copies of their books in 2012, and that over 500 KDP Select books have reached the top 100 Kindle best seller lists around the world.
• Amazon announced that for the eighth consecutive year, the company ranks #1 in customer satisfaction during the holiday shopping season according to the ForeSee annual Holiday E-Retail Satisfaction Index. ForeSee surveyed over 24,000 customers between Thanksgiving and Christmas, asking them to rate their satisfaction with the top 100 retailers. For the second year in a row, Amazon’s score of 88 is the highest ever attained by any retailer in the study.
• Amazon Web Services (AWS) announced the launch of its newest Asia Pacific Region in Sydney, Australia, now available for multiple services including Amazon Elastic Compute Cloud (EC2), Amazon Simple Storage Service (S3), and Amazon Relational Database Service (RDS). Sydney joins Singapore and Tokyo as the third Region in Asia Pacific and the ninth Region worldwide.
• AWS announced that SAP Business Suite is now certified to run on the AWS cloud platform. Enterprises running SAP Business Suite can now leverage the on-demand, pay as you go AWS platform to support thousands of concurrent users in production without making costly capital expenditures for their underlying infrastructure. AWS also announced that SAP HANA, SAP’s in-memory database and platform, is certified to run on AWS and is available for purchase via AWS Marketplace.
• AWS continued its rapid pace of innovation by launching 159 new services and features in 2012. This is nearly double the services and features launched in 2011.
• AWS has lowered prices 24 times since it launched in 2006, including 10 price reductions in 2012.

Financial Guidance

The following forward-looking statements reflect Amazon.com’s expectations as of January 29, 2013. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic conditions and consumer spending, world events, the rate of growth of the Internet and online commerce and the various factors detailed below.

First Quarter 2013 Guidance

Net sales are expected to be between $15.0 billion and $16.6 billion, or to grow between 14% and 26% compared with first quarter 2012.
Operating income (loss) is expected to be between $(285) million and $65 million, compared to $192 million in the prior year period.
This guidance includes approximately $285 million for stock-based compensation and amortization of intangible assets, and it assumes, among other things, that no additional business acquisitions or investments are concluded and that there are no further revisions to stock-based compensation estimates.

Top Image Credit: _zhang