In recent quarters Amazon’s sales have grown sharply while earnings have diminished as the company invested in increased capacity and growing their Kindle business. At the close of the market Tuesday, the company reported fourth quarter sales that will be viewed as a stumble by Wall Street: Their $17.43 billion in revenue is well below the $18.2 billion analysts were expecting, though in the middle of the company’s broad guidance, up 35.5 percent over a year ago. The stock headed south in after-hours trading on the sales shortfall, down almost 9 percent, and fell further in regular trading this morning, down over 11 percent, or more than $22 a share, at the opening bell.
Net income was meager as predicted–$177 million or 38 cents a share, down 58 percent from a year ago–though here the company exceeded analysts’ diminished expectations of 19 cents a share, and at the high end of what were disappointing expectations when announced in October. The company forecasts slower growth for the first quarter (expected to be up 22 percent to 36 percent, from $12 billion at $13.4 billion) and lower income of anywhere from a $200 million loss to a $100 million gain. Analysts had been expecting Q1 sales of $13.4 billion, so the reduced guidance is also weighing on shares. While Amazon’s own sales grew less than expected, third-party sales increased, comprising 36 percent of all units sold, up from 32 percent a year ago.
Media sales remain the laggard at the company (up 15 percent), and North American Media sales, which should be booming thanks to ebooks and still-growing print book sales as the etailer picks up market share in the wake of Borders’ closing, rose just 8 percent, at $2.56 billion for the quarter. In a conference call with analysts, cfo Tom Szkutak confirmed that North American sales of print books had “double-digit year-over-year” growth, and he indicated they saw “very strong growth in digital media, from books to video, music.” The drag on media growth was attributed to the sizable market for video games and consoles, which lacked new devices this holiday. (The US market is roughly $30 billion; NPD recently estimated that video game console sales in December were down 32 percent. Szkutak said that video units (both consoles and game software) were up, but revenue declined.
For the full year, NA media rose 15 percent, at $7.959 billion. That makes Amazon’s North American media business larger than Barnes & Noble (which forecasts full-year sales of $7 billion to $7.2 billion), but across a wider range of merchandise and divisions. International media sales are now far larger than North America, at $3.447 billion for the quarter, and grew at 20 percent, and registered $9.82 billion for the year.
The company had little to say about Kindle device sales, as usual. They repeated last week’s statistic, that device sales were up 177 percent compared to whatever they were a year ago. On the investor call, Szkutak reinforced that “unit sales nearly tripled…on a very good base.”
In other corporate news, Deal Reporter says that “three sources briefed on the matter” indicate that McGraw-Hill is preparing to sell their Education division at auction rather than spin it off to shareholders at the end of the year, as currently planned. Advisors Goldman Sachs and Evercore are said to be working on the deal, with a hoped-for valuation of roughly $3 billion. Note that the story is misattributed by some to the FT, which carries some Deal Reporter stories on its site. (You may recall that DR stories are always interesting, but not necessarily accurate.)
The notion of selling the division outright is plausible, since the realignment of McGraw Hill was driving by investors less interested in the slower-growing, less profitabl education group in the first place. But their suggestion of possible bidders reads like pure guessing. Houghton Mifflin Harcourt is already reported to be looking at another refinancing (and controlling owner John Paulson is overextended in other ways after a poor trading year in 2011); Apax-owned Cengage has said they will need to refinance as well.