Amazon rallies despite holiday shortfall

Amazon shares rose in after-hours trading as investors cheered a rise in North American profitability even though its results for the end-of-year shopping season fell short of market expectations.

Some analysts saw the increase in operating profit margin as a sign the online retailer was ending its latest round of warehouse building, but Tom Szkutak, Amazon’s chief financial officer, said: “We will still be adding capacity during 2013.”

He did indicate that by constructing delivery warehouses closer to more consumers – it built 20 last year – Amazon had been able to reduce transportation costs to the benefit of its profitability.

After falling 5.7 per cent during the day in New York, Amazon’s shares rebounded by more than 9 per cent to $284.53 in after-market trading following the release of its results on Tuesday.

Jeff Bezos, Amazon’s founder and chief executive, stoked suspicions that ebooks – which require neither warehouses or trucks – were also boosting its profitability as he suggested that consumers’ adoption of them was accelerating.

“After five years, ebooks is a multibillion dollar category for us and growing fast – up approximately 70 per cent last year,” he said. “In contrast, our physical book sales experienced the lowest December growth rate [in 17 years], up just 5 per cent.”

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In the three months to the end of December, the most crucial quarter of the year for retailers, Amazon said its revenues grew by 22 per cent to $21.3bn, falling almost $1bn short of Wall Street expectations.

Overall. US retailers reported disappointing holiday sales for 2012. Online sales growth in the quarter was 14 per cent according to ComScore, a research group, suggesting that Amazon won market share as it grew faster.

Mr Szkutak, however, said Amazon had seen weakness in demand for televisions, digital cameras, MP3 players and for expensive items priced over $1,000.

Amazon posted net income of $97m, or 21 cents a share, worse than forecasts of 27 cents a share, although the figure meant it had returned to the black after reporting a $274m net loss in the previous quarter, partly due to a writedown.

In North America, the Seattle-based company’s operating profit margin rose to 5 per cent from 3.7 per cent in the previous quarter and 3 per cent a year earlier, cheering investors.

But the profitability of its international business declined, with its overseas operating margin falling to 0.8 per cent. Mr Szkutak said the company was “investing heavily” in China and in its newest markets in Europe, where it most recently opened online stores in Spain and Italy.

Analysts are split over whether any move by Amazon to raise its profitability – by increasing prices or slowing down its investment in warehouses, data centres and Kindle devices – would deter existing or potential customers.

During the quarter, some bricks-and-mortar retailers stepped up their fight against Amazon with both Target, the mass market discounter, and Best Buy, the electronics chain vowing to match its prices.