Amazon's quarterly earnings and outlook fell short of analysts' expectations Tuesday but the company's revenue jumped 22 percent and margins were strong during the key holiday quarter.
The stock initially fell then popped higher in extended-hours trading. (Click here to get the latest quotes for Amazon.)
Chief Executive Jeff Bezos highlighted the Kindle's e-book business, calling it a multibillion-dollar category that grew about 70 percent in 2012. Its traditional physical book business rose about five percent in the same period, he noted.
"We're now seeing the transition we`ve been expecting," Bezos said in the company's results statement.
Profits have shrunk in recent years as the company invested for longer-term growth, building massive fulfillment centers, developing a Kindle Fire tablet hardware business in competition with Apple and expanding into Internet-based cloud services.
The fourth-quarter profit results suggested that Amazon may be able to generate attractive returns from such spending, analysts said.
"The fourth-quarter operating income was up more than expected," said R.J. Hottovy, an equity analyst at Morningstar. "This supports the bull case that Amazon can monetize its growth over the longer term."
Net income fell to $97 million, or 21 cents a share in the fourth quarter, from $177 million, or 38 cents a share in the same period a year earlier.
Operating expenses increased 22 percent, amid a 56-percent increase in technology and content expenses, a 43-percent increase in marketing expenses and a 36-percent increase in fulfillment costs.
Operating income jumped 56 percent to $405 million in the fourth quarter, compared with $260 million in the fourth quarter of 2011, Amazon also said.
Revenue increased 22 percent to $21.27 billion during the quarter from $17.43 billion a year ago.
Analysts had expected the company to report earnings excluding items of 28 cents a share on $22.26 billion in revenue, according to a consensus estimate from Thomson Reuters.
"It was a much better-than-expected gross margin, a strong forward indicator to drive margin expansion. What is really important is gross profit dollars and that line is stronger," said Ken Sena at Evercore Partners.
"Incredibly strong margins," said Jordan Rohan, an analyst at Stifel Nicolaus. Amazon generated the highest quarterly gross margin in its North America business in more than three years, he noted.
On the conference call, Amazon's CFO said its cloud computing business is growing very fast, helping profitability and that it will continue to add capacity to its shipping service in 2013. The company is also investing in China and Europe.
For the first quarter, the company expects operating earnings to be between a loss of $285 million and a profit of $65 million and revenue of $15 billion to $16.6 billion. Analysts currently expect revenue of $16.86 billion, according to Thomson Reuters.