Amazon’s share bubble bursts – slides 13%. Bezos ups investment spend.

The fourth quarter earnings out of the United States have disappointed investors. Apple expects sales to be below estimates as the smartphone market encounters headwinds, slowing down growth. Samsung also sees challenges in this market, with results to be well below par. Another tech giant, held in the Biznews Global Portfolio alongside Apple, just released numbers which disappointed investors, seeing the stock come off 13 percent in after hours trading. The challenge for these companies is to keep delivering expected growth given the high earnings multiples If one looks at Amazon, income more than doubled but investors still wanted more. CEO Jeff Bezos also announced an increased investment spend betting on speedier shipping, intelligent home gadgets and Web technology to carry the company into the future. – Stuart Lowman

amazon

By Spencer Soper

(Bloomberg) — Amazon.com Inc. just reminded everyone it’s perennially in investment mode.

While fourth-quarter net income more than doubled to $482 million, or $1 a share, it was much less than what analysts’ had projected and Amazon’s shares plummeted as much as 15 percent after the Web retailer reported results Thursday for the busy holiday quarter.

The Amazon logo is seen on a podium during a press conference in New York, September 28, 2011. Amazon CEO Jeff Bezos introduced a line of four new Kindle products, the Kindle Fire tablet, the Kindle Touch 3G, the Kindle Touch and a new lighter and smaller Kindle. AFP PHOTO/Emmanuel Dunand (Photo credit should read EMMANUEL DUNAND/AFP/Getty Images)
The Amazon logo is seen on a podium during a press conference in New York, September 28, 2011.

After delighting investors with a surprise profit in the middle of 2015, Chief Executive Officer Jeff Bezos has decided to boost spending again, betting that speedier shipping, intelligent home gadgets and Web technology and services will deliver robust sales growth down the road. He isn’t shy about spending money: Amazon ramped up same-day deliveries in the latest period, driving up fulfillment costs by 33 percent; the company will also air its first-ever Super Bowl ad next week. All this is line with Bezos’s argument that Amazon is still in the early stages of growth: “It feels every bit like Day 1,” he said in the earnings statement.

“I’ve been following Amazon for a very long time and I’ve seen people doubt this stock before,” said Victor Anthony, an analyst at Axiom Capital Management. “They are investing to get closer to the customer and continue to take meaningful share of retail. Investors who stick with the stock will continue to be rewarded as they have been in the past five years.”

Read also: Academics discover why Amazon shares outperform Google’s – it’s called ROAM

While revenue rose 22 percent to $35.7 billion in the fourth quarter, the stronger dollar subtracted $1.2 billion, pushing it below analysts’ average projection for $35.9 billion. Net income fell short of analysts’ prediction for $742.9 million, or $1.55.

Amazon’s shares, which more than doubled last year, fell as much as 15 percent in extended trading. The share slide erased more than $5 billion from Bezos’s net worth, to $50.3 billion.

This was the first shopping season following Amazon’s Prime Day promotion in July, an effort to boost the company’s $99-a-year subscriptions that include delivery discounts and convert occasional shoppers into devotees. It was also the first season that Amazon offered same-day deliveries in most big cities around the country to cater to last-minute shoppers. E-commerce is on track to make up 9.8 percent of all U.S. retail sales in 2019, up from 7.1 percent in 2015, according to EMarketer.

Read also: Lucy Kellaway: Bravo Bezos. Amazon leads the way, reintroducing good sense

At the end of 2015, there were more than 54 million Prime members, who get two-day deliveries and access to online movies and music, according to Consumer Intelligence Research Partners. That’s an increase of 35 percent, the researcher said, adding that the average U.S. Prime shopper spends $1,100 annually with Amazon, compared with $600 for non-members.

For the first quarter, Amazon forecast revenue of $26.5 billion to $29 billion, compared with analysts’ average estimates of $27.6 billion.

Web, Spending

One bright spot was Amazon Web Services, the cloud-computing division, which had fourth-quarter sales of $2.4 billion, up 69 percent from a year earlier. The unit, built on Amazon’s expertise in running its Web store and handing massive amounts of data and analysis, represents a fast-growing and profitable part of Amazon’s business, even though it makes up only about 7 percent of revenue, the company said.

On the spending side, operating expenses increased 21 percent to $34.6 billion, Amazon said. Bezos’ biggest challenge is balancing Wall Street’s thirst for profits against his own ambitions of using new technology — such as unmanned drones and intelligent household gadgets. Bezos is also eager to replicate his U.S. success abroad, including challenging Flipkart Online Services Pvt. for India’s fast-growing e-commerce industry. Spending on delivery fulfillment and technology jumped, according to Kerry Rice, an analyst at Needham & Co.

“They were well below what people were expecting on earnings because they spent more than what people were expecting,” Rice said. “Amazon reached this new level of profitability in 2015 that we hadn’t seen previously. If they don’t keep that trend going in the right direction, the stock goes down.”

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