Amazon (AMZN) Drops on Lackluster Outlook after Q4 Earnings Tops Estimates on Improved Margins
By:NewsyStocks   Tuesday, January 31, 2022 6:09 PM



Online retailer Amazon.com (AMZN) provided bleak outlook for the first quarter dragging its stock down more than 8 percent in the extended hours of trading. Though the company's revenues for the fourth quarter fell shy of estimations, earnings came in ahead of expectations on improved operating margins sequentially. Gross margin too showed slender improvements sequentially.

Year-on-year, the company's profit plummeted 57.5 percent though revenues surged 34.6 percent. Clearly, increased costs hurt its gross as well as operating profit.

The disappointment from the market is quite understandable since the stock is trading in the 52-week range of $160.59 to $246.71. Amazon seemed to have preferred cautiousness while providing outlook given the fact that even for the fourth quarter; it had projected in the same way of operating loss to operating profit.

Of late, the company has been expanding its presence in new regions and categories resulting in more spending amidst squeezing margins. The company had offered free shipping and discounted prices for its Kindle devices hurting margins further.

Q4 Results

The Seattle, Washington-based Amazon reported net income of $177 million, down 57.5 percent from $416 million and earnings plummeted 58.2 percent to 38 cents a share from 91 cents a share in the year-ago quarter.

Net sales increased 34.6 percent to $17.43 billion from $12.95 billion in the previous year quarter. Street analysts' had estimated the company to deliver earnings of 19 cents a share on revenues of $18.21 billion.

The company's results benefited from positive currency effect resulting in an additional operating income of $5 million.

Gross margin slipped to 20.65 percent from 23.5 percent, while operating margin dropped to 1.49 percent from 3.71 percent in the year-ago quarter. But sequentially, gross margin showed slight improvement from 20.31 percent and operating margin more than doubled from a mere 0.73 percent in the third quarter.

Outlook

Moving ahead, Amazon expects operating loss of $200 million in the negative range to operating income of $100 million in positive range for the first quarter. Revenue is projected to increase 22 percent – 36 percent to approximately $12.0 billion to $13.4 billion.

The outlook is below Street analysts' estimation for earnings of 33 cents a share on revenues of $13.41 billion.

Competitor Performance

Recently, eBay reported net income of $1.98 billion or $1.51 per share, sharply higher than $559.2 million or 42 cents a share in the year-ago quarter. The profit was driven mainly by the sale of Skype and related items to the tune of $1.66 billion. Excluding the gain, net income would have been $788.6 million or 60 cents a share, up 15.3 percent from $683.8 million or 52 cents a share in the year earlier quarter.

Net revenues surged 35 percent to $3.38 billion from $2.50 billion in the previous year quarter.

Our Take

Amazon had shown improved operating margins sequentially, yet that is not enough. The company's rapid expansion is at the cost of profitability. While expansion is absolutely essentially, erosion of profit upsets investors' sentiments. There is still enough room for the company to improve its gross margin as well as operating margin. The leader should have higher margins than its rivals.


 

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