Amazon.com Inc posted its most profitable quarter ever on Thursday but the world's No. 1 online retailer still managed to disappoint Wall Street by badly missing estimates, sending its shares down more than 13 percent in after-hours trading.
The results, as well as the company's determination to invest more in new areas and its extremely low profit margins, brought back perennial questions for investors about the company's ability to consistently earn money.
"By comparative retail standards, Amazon's level of profitability is still painfully weak," said Neil Saunders, head of retail analyst firm Conlumino, who is still positive on Amazon's prospects. "For every dollar the company takes, it makes just 0.75 of a cent in profit."
Amazon's net profit for the fourth quarter, which includes the holiday shopping season, rose to $482 million, or $1.00 per share, in the quarter ended Dec. 31, up from $214 million, or 45 cents per share, a year earlier.
That figure was held back by rising operating costs. It was well below analysts' average forecast of $1.56 per share, according to Thomson Reuters I/B/E/S.
The company's shares plunged 13 percent to $551.50 after hours on Thursday, following a 9 percent increase in regular trading. They are still up 80 percent over the past 12 months.
Amazon notched its third consecutive profitable quarter for the first time since 2012, but it still left Wall Street wanting more.
"The growth story that investors were looking for... clearly Amazon has not been able to live up to the hype," said Adam Sarhan, chief executive of Sarhan Capital.
Net sales rose 21.8 percent to $35.75 billion, but missed analysts' expectations of $35.93 billion.
Excluding a $1.2 billion unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 26 percent compared with the fourth quarter of 2014.
Amazon Chief Financial Officer Brian Olsavsky defended the company's results on Thursday, adding that foreign exchange rates had an unexpectedly large impact, but overall the company had "a very strong quarter and a strong year."
Net sales from its cloud services business, Amazon Web Services, rose 69.4 percent to $2.41 billion, compared with a growth of more than 78 percent in the third quarter. AWS continues to be the fastest growing division within Amazon.
The company's total operating expenses rose more than 20 percent to $34.64 billion in the fourth quarter.
Olsavsky reiterated Amazon's expectation to make continued investments in its cloud division and expand its offering for Prime members with faster delivery and more original video content.
"The investments will ebb and flow over time, but our focus on cost reductions and improvement on customer experience will be constant," he said.
Amazon has historically sacrificed profit, instead doubling down on investment in growth areas like Prime and AWS. Amazon founder Jeff Bezos has called these "big bets" that are the cornerstone of the online retailer's growth.
As a sign of its underlying growth, the Seattle-based company now employs 230,800 staff, many of them in its warehouses, up 50 percent from 154,100 a year ago.
Amazon's net shipping costs surged 37 percent in the fourth quarter as it handles more deliveries for its third-party merchants. The company said the number of sellers using the Fulfillment by Amazon (FBA) program grew by more than 50 percent last year.
Amazon has been spending on rolling out several new services for members of its $99-a-year Prime loyalty program, including one-hour delivery and original TV programming, to attract customers in a highly competitive online shopping market.
The company said on Thursday worldwide paid Prime subscribers grew 51 percent. Amazon's Prime program is estimated by some analysts to have around 50 million members worldwide.
Amazon forecast sales for the first quarter of between $26.5 billion and $29 billion, or up between 17 percent and 28 percent compared to the same quarter last year. It forecast operating income between $100 million and $700 million, compared to $255 million in the first quarter last year.
Analysts had forecast $27.6 billion in sales and $400.3 million in profit.
"The stock is getting killed because the Street is too high on next year," said Wedbush Securities analyst Michael Pachter.
(Reporting by Arathy S Nair in Bengaluru; Editing by Kirti Pandey, Stephen R. Trousdale and Bill Rigby)