It would be an understatement to say that investor expectations were high going into Amazon.com's (AMZN) fourth-quarter earnings report. Preliminary reports of the company's holiday sales were a cause for optimism. According to Channel Advisor, Amazon.com's same-store sales in December were up 15.5%, following a 22.9% increase in November. Those are some pretty strong gains, especially when compared with traditional bricks-and-mortar retailers, who struggled over the holiday season. Walmart is closing 269 stores. Macy's is cutting 4,500 jobs and shuttering dozens of stores.
Expectations were also high for Amazon's cloud service business, Amazon Web Services, which had been growing at a crazy rate. And although Amazon does not release figures for its Amazon Prime service, at $99 per subscriber, there were rumors that almost half of Amazon customers were now on Prime.
So what happened? Amazon failed to deliver, but it wasn't all bad. Amazon's annual sales surpassed $100 billion for the first time. Amazon customers surpassed 300 million. Holiday quarter sales were up 22%, coming in at $35.7 billion vs. $29.3 billion last year. In fact, the quarter would have been even stronger from a revenue standpoint absent a $1.2 billion unfavorable currency impact due to the strong dollar.
Amazon Web Services beat sales estimates, coming in at $2.41 billion vs. estimates of $2.38 billion. But the rapid trajectory of growth has slowed a bit, and the gain in the latest quarter was only 69% compared with 82% in the previous quarter and 78% a year before.
For the third consecutive quarter, Amazon was profitable, but it wasn't as profitable as analysts had been modeling. The Capital IQ consensus was for earnings per share of $1.58. But EPS came in at only $1.00. That represents a big miss on the bottom line.
Given the company's strong sales growth, CEO Jeff Bezos and company management didn't seem overly apologetic on the conference call. The stock fell so precipitously on Friday because it had been priced to perfection on those bullish expectations about the holiday period. Before the earnings release on Thursday afternoon, shares had been changing hands around $638, up 9% on the session and up about 110% over a year. Shares plummeted during Friday's session and closed the day down 7.6% from Thursday.