Stock in online retailing giant Amazon hit an all-time high in after-hours trading yesterday, on the Nasdaq, as it climbed to $290.49, before settling at $283.99, after releasing quarterly and full year results.
The jump in share price came despite the group reporting a net loss for the full year as investors pinned their hopes on the future, and were moved by an operating margin that improved quicker than was generally expected.
The stock's previous record high was $283.99, which it hit on 25 January in regular trading, after 4.9 million shares changed hands. Yesterday, 4.3 million shares traded in after-hours trade, and just more than 10 million shares moved during the day, three times the average over the last 50 days.
Confident investors
Amazon, which is on a high price-to-earnings ratio of 3 719, yesterday said sales gained 22%, to $21.27 billion, in the fourth quarter, but net income dropped 45%, to $97 million. Taking out a $178 million unfavourable impact from foreign exchange movements, net sales in the quarter gained 23% year-on-year.
For the full year, sales grew 27%, to $61.09 billion, but it reported a net loss for the year, of $39 million, compared to a $631 million gain in 2011. Stripping out the $854 million unfavourable impact from year-over-year changes in foreign exchange rates throughout 2012, net sales grew 29%, compared with 2011.
Sasha Naryshkine, an analyst with Vestact, says it does not matter what Amazon did during the year; what matters to investors is what it will do. He says Amazon has a massive first mover advantage through its online retailing space, and in a decade most brick and mortar stores will have followed suit.
"We're now seeing the transition we've been expecting," says CEO and founder Jeff Bezos. "After five years, e-books is a multibillion-dollar category for us and growing fast - up approximately 70% last year. In contrast, our physical book sales experienced the lowest December growth rate in our 17 years as a bookseller, up just 5%."
Naryshkine adds that Amazon is seen as innovative and has a bit of "Apple-type" hype around it, which is not all bad. "Amazon is one of those futuristic companies that probably hasn't quite met their full potential."
No argument
It does not matter if the price-to-earnings ratio looks "nuts", or Amazon missed earnings and revenue expectations, as what counts is that it improved its operating profit faster than expected, says Naryshkine.
Operating income increased 56%, to $405 million, in the fourth quarter, compared with $260 million in the last quarter of 2011. For the full year, operating income decreased 22%, to $676 million.
Naryshkine says, based on the price-to-earnings ratio, Amazon needs to see earnings between $15 and $20 a share in the next few years, otherwise the stock price will be crushed. For the fourth quarter, net income per share was $0.21, lower than the year ago $0.38. For the full year, Amazon made a net loss of $0.09 compared with net income of $1.37 in 2011.
Amazon says for the first quarter of 2013, net sales are expected to be between $15 billion and $16.6 billion, representing growth of between 14% and 26% compared with the first quarter of 2012. The online retailer adds that it expects to make between a $285 million operating loss and a $65 million gain compared to $192 million in the previous year.
Naryshkine says Amazon may hit $2 a share in earnings this year, which is a multiple of 140 based on its current stock price. He does not know whether investors are right, "but you don't want to fight the collective market".
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