US online retailer Amazon.com posted its first ever profitable year yesterday as a weak dollar and price cutting boosted international sales.
However, not all the news was positive. Wall Street analysts are worried about the sustainability of the model and with questions being asked about the company`s gross margins, its free shipping promotions and the price cutting strategy, its share price dipped in after hours trade.
Reuters says the Seattle-based e-tailer`s fourth-quarter net profit rose to $73.2 million, or 17 cents per diluted share, from $2.7 million, or one cent a share, in the year-ago period. Profit excluding charges was 29 cents per share, matching the average Wall Street estimate.
Revenues, which benefited from the impact of a weak dollar, jumped 36% to a better-than-expected $1.95 billion from $1.43 billion a year ago.
Amazon shares dipped to $55.14 in extended trade from their Nasdaq close of $55.74.
"The upside in revenues didn`t translate into upside in the bottom line. That is what people expect," says Safa Rashtchy, analyst with Piper Jaffray & Co.
Amazon forecast first-quarter revenue of $1.39 billion to $1.49 billion and full-year revenue of $6.20 billion to $6.70 billion.
For the current quarter, analysts polled by Reuters Research had been calling for revenue of $1.32 billion. For 2004, analysts had seen Amazon posting revenue of $6.23 billion.
Rise in Foreign Sales
While foreign sales surged by 74%, Amazon`s domestic sales fell by 18% and this was blamed on its aggressive pricing that pushed gross margins lower and prompting probing questions during the company`s conference call on Tuesday with the media.
The company`s gross margin, the difference between what a company charges its goods and what it pays for them, fell to 21.9% of sales from 23.5% in the year-ago period. Part of the decline was fuelled by the company`s free-shipping promotion, which the company made permanent last January.
Amazon executives defended the company`s aggressive approach to pricing, arguing that the company`s higher operating profit margins and free cashflow were a better measure of its performance.
Legendary Amazon founder Jeff Bezos claims the model is working and says that gross margins would continue to fall as the company continued to push prices lower and expanded into new markets.
Neil Smith, a consultant at South African electronics e-tailer Take2.co.za, says: "Amazon has said that 2003 would be the year in which online retailing takes off and I think that has arrived."
He says that the upside is that online retailing will become an even bigger force in this country and around the world. "One just has to take a look at the growth in online banking to see that it is a reality."
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