Amazon Posts 20% Revenue Growth, Stock Drops - InformationWeek

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1/31/2014
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Amazon Posts 20% Revenue Growth, Stock Drops

Amazon.com and its Web Services unit grew in the fourth quarter of 2013 but not enough to please investors -- Amazon stock dropped 9.5%.

Deadly Downtime: The Worst Network Outages Of 2013
Deadly Downtime: The Worst Network Outages Of 2013
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Amazon reported its fourth-quarter results Thursday. Even though revenue grew 20% from a year earlier to $25.59 billion, its stock slumped in trading after the announcement.

Net income more than doubled to $239 million, or 51 cents per share, during the key holiday shopping quarter of October-December. The Wall Street analyst consensus in advance of the report had pegged earnings 74 cents per share on revenue of $26.05 billion.

The results appeared to trigger disappointment in Amazon investors, even though full-year revenue grew 22% to $74.45 billion. Operating costs grew at a slower rate of 10%, but Amazon's spending on its business went from $676 million in 2012 to $745 million in 2013. Amazon stock fell 9.5% in the aftermath of the announcement from its close of $403.01 the day before to $364.58.

To boost cashflow, Amazon is reportedly considering raising the price of Prime customer membership ($79 a year) by $20 or more. Prime customers get free shipping and other benefits. Comments left at some blogs worried that such a move would cost Amazon customers, but a minority maintained that Amazon has developed enough stickiness that it would be hard for Prime subscribers to give up their benefits because of a small price increase.

[Read how Amazon keeps margins tight: Amazon Cuts Cloud Storage Prices, Adds Server Instances.]

Amazon Web Services turned in a solid quarter. "Other" revenue (which is believed to be largely AWS), nearly doubled in 2013 over 2012 to $3.2 billion.

Jillian Mirani and Michael Barba, cloud practice analysts at Technology Business Research, wrote in a note that Amazon is "successfully executing" its strategy of taking marketshare as a public infrastructure service provider to the enterprise market. It is doing so by repeatedly adding to its technology stack with such things as Amazon Workspaces or cloud-based end-user virtual desktops, tools for application development, and value-added database systems.

On Feb. 1, AWS will cut prices for the 40th time since launching EC2 in 2006. It will drop Elastic Block Store pricing by 50%, and several server instance prices will be cut an average of 14%. Amazon is the market leader in the segment, according to Gartner. CEO Jeff Bezos seems determined to keep it that way, despite the parent company's thin margins.

Private clouds are moving rapidly from concept to production. But some fears about expertise and integration still linger. Also in the Private Clouds Step Up issue of InformationWeek: The public cloud and the steam engine have more in common than you might think (free registration required).

Charles Babcock is an editor-at-large for InformationWeek and author of Management Strategies for the Cloud Revolution, a McGraw-Hill book. He is the former editor-in-chief of Digital News, former software editor of Computerworld and former technology editor of Interactive ... View Full Bio

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David F. Carr
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David F. Carr,
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1/31/2014 | 6:37:21 PM
AWS just a blip?
Great that it looks like Amazon boosted its cloud services revenue, but is it really material to the health of the business? Is it ever likely to be?
Lorna Garey
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Lorna Garey,
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2/3/2014 | 3:59:46 PM
Call me a socialist ...
But since when is 20% revenue growth with a doubling of net income cause for disappointment among investors? That's a sign just how crazy expectations have gotten. At some point, what if Amazon decided not to raise Prime prices and instead to hold steady and even plow more profits back into R&D, a la Apple? Would the stock be lowered to junk status?
Charlie Babcock
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Charlie Babcock,
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2/3/2014 | 4:32:00 PM
Amazon overly ambitious?
The thing that makes me wary is that Amazon.com is trying to do so many things at once. It's building out fulfillment centers. It wants to do same day deliveris and deliveries of fresh groceries in those big green trucks marked "Fresh." That's a huge amount of distribution infrastructure they're trying to build out. They are trying to be in the consumer hardware space with the Kindle and Kindle Fire tablets. They want to compete with Netflix in movie and video downloads, while hosting Netflix. They want to produce video content. They're trying to capture the consumer in multiple ways. It may work but it may also be overly ambitious.
Charlie Babcock
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Charlie Babcock,
User Rank: Author
2/3/2014 | 4:37:13 PM
Amazon plan? Generate cash to support the capital building.....
Kmarko: "It continues to generate enough cash to support the capital building plan." Yes, it does, but barely. What happens if there's not sufficient growth to suppot the building already under way? The discussion of a hike in Prime subscriptions generates more cash flow, also commits the company to a year of free deliveries at a modest price. I sort of see what they're doing; wary that it's always going to work.
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