Amazon.com's Holiday Surprise

Posted by: Rob Hof on February 01

No, I don’t mean Amazon’s fourth-quarter net profit, which fell 50% (largely on its having to pay taxes compared with a tax benefit from a year ago)—though it did top analysts’ estimates. A couple of other metrics stand out to me, at least: Sales were up 35%, and even excluding a foreign exchange-rate bonus, they were up 30%. That easily outpaces e-commerce overall, which was about 25%.

Maybe more interesting to the investors bidding up the stock by 4% after-hours, following nearly a 3% rise before the report: Amazon’s forecasting first-quarter sales up 25% to 32% and full-year sales up 21% to 28%. Both seem pretty bullish given Amazon’s usual rather conservative guidance. Operating profit predictions, as usual given the many variables at work, go from a negative to as much as 30% into the black.

None of this will please the most bearish investors, since the P/E ratio for 2007 remains pretty darn high. But the fundamentals don’t look bad.

Update: As the conference call gets underway, that after-hours uptick is disappearing. One interesting stat from Goldman Sachs’ Anthony Noto that certainly underscores the bear case on Amazon: He estimates that with Amazon’s forecast, the company will see a revenue addition of $5 billion from ‘05 to ‘07, but an operating income addition of only $31 million—almost no profits, in other words. His question: Where’s the leverage? Some analysts think it will kick in this year, but it’s not yet apparent how.

Update 2: Now the stock’s a bit underwater after-hours. Clearly, some investors don’t like what they’re hearing, possibly the lack of obvious profit drivers. (OK, now they’re up a bit again. Go figger.)