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Amazon's 4th Quarter: Sales Up, Profits Down


 Amazon's 4th Quarter: "We Are Now Seeing the Transition We've Been Expecting."

Amazon released its 2012 fourth quarter earnings yesterday: sales were up, but profits were down.

The Wall Street Journal reports that shares of Amazon increased 9.4% during after-hours trading on Tuesday, after the company released its Q4 earnings. Amazon's stock prices have been steadily increasing, "up more than 33% over the last 12 months" in spite of "thin margins in recent quarters" and "shrinking" profitability. Said Brad Stone from Bloomberg Businessweek, "Investors like what they see… . The stock set an all time high" on Tuesday.

Amazon founder and CEO Jeff Bezos released a statement on Tuesday:

"We are now seeing the transition we've been expecting. After 5 years, eBooks is a multi-billion 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 book seller, up just 5%. We're excited and very grateful to our customers for their response to Kindle and our ever expanding ecosystem and selection."

Amazon's press release includes numbers for net services sales from third parties. They were up almost $1 million over Q4 2011. "Amazon is becoming the platform that any seller uses to sell online." (Bloomberg Businessweek).

Q4 Numbers

Net sales increased 22% to $21.27 billion (up from $17.43 billion in Q4 2011). Taking foreign exchange rates into account, "net sales grew 23% compared with fourth quarter 2011."

Operating income increased 56% to $405 million, compared with $260 million in Q4 2011. Taking foreign exchange rates into account, "operating income was $2 million."

Net income decreased to $97 million, down 45%. That's "$0.21 per diluted share, compared with $177 million, or $0.38 per diluted share, in fourth quarter 2011."

Analysts had predicted a profit of 28 cents a share.

Holiday Sales

Amazon announced that it "ranks #1 in customer satisfaction during the holiday shopping season… ." After surveying over 24,000 customers between Thanksgiving and Christmas, the ForeSee annual Holiday E-Retail Satisfaction Index gave Amazon a score of 88 in both 2011 and 2012. That's the "highest ever attained by any retailer in the study."

Sales Tax Impact? 

There was speculation that Amazon's sales would drop in Q4 in part because the online retailer started collecting sales tax in California and Pennsylvania in September. Yet overall, sales are up. Indeed, Amazon supports federal legislation to allow states to collect online sales tax, and it has reportedly hired "the biggest lobby shop in Washington" to lobby for the Marketplace Fairness Act in 2013. Paul Misener, Amazon's vice president for global public policy, has said that "[s]ellers should compete on a level playing field."

Sales tax isn't everything, after all. According to Amazon Chief Financial Officer Tom Szkutak, "the company added 20 new shipping facilities" in 2012. Their goal is to "get as close to the customer as possible." Worldwide, the company how has 89 fulfillment centers. Earlier today, the company announced plans to open three new fulfillment centers in the state of Texas this year. More fulfillment centers means faster delivery and, presumably, happier customers.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.