Amazon Sees 58 Percent Decline in Profits

Amazon shares plummeted almost 10 percent in late trades on Tuesday after the company put out a press release announcing it missed its fourth-quarter projected goals. Despite the sales of its Kindle devices during the holidays, Amazon, the largest Internet retailer, reported a 58 percent decline in its fourth-quarter profit due to too much spending and increased shipping costs. 

The Seattle e-commerce company said its sales rose 35 percent, from 2010’s $12.95 billion to $17.4 billion, during the last three months of 2011. However, overall profits plunged 58 percent from $416 million (0.91 cents per share) to $177 million, (0.38 centers per share) as Amazon continued to spend heavily on development and infrastructure to support its Kindle business and other company costs.

Analysts estimate that the Kindle, including both the e-reader and the newer tablet model, the Fire, sold around 6 million units during the holiday. The Android powered device, priced at $199, is Amazon’s attempt at breaking into the tablet marketing, going head to head with Apple’s (News - Alert) iPad.

“We are grateful to the millions of customers who purchased the Kindle Fire and Kindle e-reader devices this holiday season, making Kindle our bestselling product across both the U.S. and Europe,” said Jeff Bezos, Founder and CEO of Amazon. “Our millions of third-party sellers had tremendous holiday season with 65 percent unit growth and now represent 36 percent of total units sold.”

Although Amazon has begun to make a name for itself with tablets, Bezos did not comment regarding the millions the company lost this year in profits, nor did he make a statement reassuring investors about the loss.

Amazon has conditioned investors to expect stronger growth, making the latest results disappointing, said Colin Gillis, an analyst at BGC Partners LP in New York. “To miss on the top line, that’s what breaks the momentum,” said Gillis, who recommends selling Amazon stock.

In Amazon’s defense, Tom Szkutak, Amazon’s Chief Financial Officer, said estimates on a company’s performance is always a difficult call. “Trying to predict during a seasonal Q4 is challenging,” said Szkutak. “If you look at that net loss number as a percentage of revenue, it keeps going up. They’re trying their best to offset that in other ways.” Analysts agree expecting consumers to begin using their Kindle devices to make purchases that will begin to chip away at the loss in revenue.

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