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Amazon Takes a Drubbing

The online bookseller's shares give up 10% in premarket trading.

The perpetually upbeat Jeff Bezos is probably somewhere smiling right now, but the CEO of online book and music seller


might have to search for some time to find any cheerful shareholders.

Amazon's stock was tumbling 10% in premarket trading Friday, a day after the company's fourth-quarter sales missed Wall Street's expectations. Lately, the shares were down $4.34 to $38.40. Leading up to the quarterly report, Amazon had already fallen $1.24 to $42.74 in regular action Thursday.

The Seattle-based online retailer made $199 million, or 47 cents a share, down from the year-ago $347 million, or 82 cents a share. The company said earnings for the quarter ended Dec. 31 were aided by a $38 million tax benefit related to deferred tax assets, down from a $239 benefit in the year-ago period.

The earnings appeared to beat the Wall Street estimate, which called for a 21-cent profit. But sales rose 17% from a year ago to $2.98 billion, missing the $3.1 billion Thomson First Call analyst consensus estimate.

Operating income rose 1% to $165 million in the fourth quarter. Excluding the $12 million unfavorable impact from year-over-year changes in foreign-exchange rates throughout the quarter, operating income grew 9%. But operating expenses rose 31% from a year ago to $502 million, led by increases in fulfillment, technology and administrative costs.

"Subscriptions to Amazon Prime more than doubled from November to December," Bezos said. "Amazon Prime members get 'all-you-can-eat' two-day shipping for free." They pay $79 annually for the privilege.

Outbound shipping-related costs totaled rose 20% in the quarter to $280 million. Net shipping loss expanded 17% to $91 million because of Amazon Prime and other free shipping orders.

"The profitability of the business hasn't been any better than it has been. It is still low margins and price-competitive," says Martin Pyykkonen, an analyst with Hoefer & Arnett who rates the shares sell. "The question investors should ask is if Amazon is a retailer or an Internet stock. I would argue that it is a retailer."

"The company is executing extremely well," says American Fund Advisors fund manager Alan Lowenstein, who follows the tech sector. "It's just that the stock has been bid up too high." Margins also have been hurt by high fuel costs during the holiday season, he says.

The company guided to first-quarter revenue of $2.14 billion to $2.29 billion. The Thomson First Call estimate was $2.26 billion.