Amazon.com's Holiday Surprise

Posted by: Rob Hof on February 1, 2007

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.)

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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