WELCOME TO THE TEFON MARKET…THIS HEADLINE SAYS IT ALL!
Amazon reported revenue and earnings that were below Wall Street’s printed expectations, but the stock responded by soaring to an all-time high.
(The company’s profit margin was modestly higher than expected. And the stock is likely benefitting from some short-covering, as Amazon bears panic and cover their bets).
Amazon stock hit an all-time high of about $285 in after-market trading. That gives the global ecommerce leader a market cap of about $125 billion.
Here are the numbers:
- EPS: $0.21 cents versus consensus estimate of $0.28 cents
- Revenues: $21.27 billion versus estimate of $22.3 billion
Other important numbers:
- $97 million of net profit, down 45% from last year
- Q1 sales guidance: $15-16.6 billion, versus estimates of $16.85 billion.
“We’re now seeing the transition we’ve been expecting,” Jeff Bezos, said in the release. “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.”
Here are the notes from the earnings call:
Click here to update this post.
5:01 – The call is beginning
VP of Investor Relations, Sean Boyle, and CFO Tom Szkutak on the line
5:03 – Tom begins
Talking about all the financials…
Investing in technology and infrastructure including Amazon web services. World wide revenue grew more than 20%. Media revenue increased 10% excluding foreign exchange.
Now talking about operating expenses.
5:08 – Turning to balance sheet…Numbers are all here in the release.
5:10 – Guidance
Guidance – based on order trends we see today. Not possible to accurately predict demand. Giving a big disclaimer.
Net sales between $15-16.6 billion for Q1.
Gap operating income $258 million loss and $65 million positive income.
5:11 – Moving on to questions
First question from Morgan Stanley – Are there other parts of the business where you can transition to more of fixed cost?
Tom – You’re right in terms of over past few years we have expanded our fulfillment network. You’re seeing that reflected in our transportation costs and fulfillment expense is really not fixed. Seeing that all reflected in margins. In terms of other opportunities, there are a number of opportunities as we invest in individual customer experience areas across the business. Many of those will be on our website. As they grow they become more effective on per unit or customer basis. There are a number of opportunities that we will have moving forward to do that.
Next question from JP Morgan. Asking about shift to 3rd party in video game space in particular. Are there specific categories you would point to where you’ve made this shift?
Tom – We did see a good expansion as you mention in 3rd party units. Increased from 36% last year. Overall unit growth rate was 32%. 3rd party was in excess of 40%.
Question from Jeffries – Would you provide any insights around shipping?
Tom – Not a lot I can comment on in regards to plans. We opened up 20 new fulfillment centers and we saw very rapid growth in fulfillment capacity and we’ll stay tuned and let you know more as year progresses.
RBC Capital Markets question – Last couple of calls you’ve called out specific investments. You didn’t do it this quarter. Does that mean we’re at end of major investment cycle?
Tom – In terms of unit growth, there’s not a lot more I can add to it. We did see substantially high unit growth in Q4; we’re seeing very strong 3rd party growth. I wouldn’t read into anything related to investment cycle. In terms of levels of how much we’ll add, stay tuned.
5:19 – Goldman Sachs question – Sales tax issue; impact of being closer with faster delivery in new states. Net net, what do you see as being the impact of rolling out fulfillment center footprint, taking both those things into account?
Tom – I’m not really sure how best to answer your question. We certainly have expanded rapidly since 2009. 2010-2012 we’ve rapidly increased footprint globally. Can carry a much broader selection. We continue to be in the locations we’d like to be in and we’ll continue to expand our footprint over time and become even closer and closer to customers.
5:21 – Gene Munster question – Growth in 3rd party, is that higher margin?
Tom – That’s what we attempt to do from a pricing standpoint is to try and be agnostic. This is on a 3rd party versus retail. We’ve also added a lot of other services in terms of fulfillment. Certainly as you look at last few years we’ve been very heavily expanding because growth we’ve been experiencing puts pressure on cost structure. Again, we’re certainly attempting at least on a product basis to be roughly agnostic.
5:23 – Nomura question – Kindle and Kindle HDs. Attach rate trends.
One thing certainly to look at, number that was in the release today, multi-billion-dollar e-book business growing. Launched it just five years ago. Seeing very good progress in other digital media categories. Seeing Prime customers who are watching free content through our video platform has gone over year over year, increased membership year over year, they’re also purchasing paid content. Watch free but also paying for new content which is great. We’ve launched a number of new services on the music side. I can’t give you specific for attach rates but business is making good progress and it’s still very early.
Deutsche bank question – Reclassified some revenue in early 2012.
In terms of overall selection, as we were talking about earlier in terms of having more expanded footprint, there’s no question that’s helping us add selection more economically to Prime. That’s both in terms of third party selection and retail selection. We did add shipping portion fees in Q1 2012 and we see some benefit year over year. Still seeing leverage
Merill Lynch question – Able to call out Taiwan and video game categories. ANy reason revenues were in lower half of this quarter.
Tom – If you look at our growth rate, we were up 23% on a revenue basis, higher in per unit basis. In terms of some of things we saw, we saw solid growth across many different categories and geographies year over year. Some things to call out that may have been a little softer: we did see some of higher average selling price items be softer. Consumer electronics subcategories like TVs and MP3 players, digital cameras to some extent were softer. But again, with base that we have in Q4, still very solid growth. Another one, we were thrilled to have Paper White in our lineup, certainly the best e-reader that’s out there, but we couldn’t keep up with demand. We would have had more sales in Q4 if we were able to keep up with demand. Team is working very hard to make sure we have good in stock moving forward on that product.
Amazon instant video question – Ability to add exclusive content, and what relationship is between adding more titles on hardware, like Kindle devices?
Tom – We’ll continue to expand our selections in terms of Prime instant video and in a number of different ways. We have a very interesting selection right now as it relates to Prime overtime. Beyond that, you’ll have to stay tuned.
5:30 – Evercore partners question – Question on other segment line.
In terms of EWS business, We’ve increased number of services dramatically over last couple of years. We’ll continue to innovate on behalf of customers in that space. Others go into that line item: credit card and marketing revenue goes in there. But again, EWS is in that line item.
5:32 – Barclay’s question: Pace of business throughout fourth quarter. Deceleration in month of December?
Tom: Not a lot of specifics. We don’t talk about trends within the quarter. But in terms of year over year growth, obviously the Q4 is very seasonal. December is by far largest month. In terms of digital growth rates, not a lot of comments there. In terms of international, a lot of geographies we are investing in heavily. China would be one. Some of the European countries we’re investing in. You’re seeing those represented in those segment results.
5:33- Citi question – Domestic versus international margins?
Not a particular call out that I can make on that. In terms of the difference between the two, keep in mind a couple factors: Mix of business is a little bit different. Also have newer geographies that we’re investing in have a longer term horizon for returns. So those are factors that you look at the two segments differently.
5:35 – Video game sales impacted YOY growth?
We haven’t broken out first party versus third party. That’s not something we’ve done. Not something I can help you with there?
5:37 – Accounting clarification. Second question: LivingSocial Amazon investment.
There’s not a lot I can specifically talk about as it relates to LivingSocial. So I’d encourage you to look at our full disclosures related to that. Local – there still is a very interesting opportunity there. We do have an investment in LivingSocial and a local business ourselves. So it’s an interesting opportunity and a long term opportunity to make that even better. Think about it over the long-term horizon and it’s very early there.
5:37 – Call ends.