Amazon.com shares fell on Wednesday after heavy spending on expansion led to a sharp drop in fourth-quarter profit, prompting the online retailer to warn of an impending quarterly loss.
Ben Margot
Amazon.com's fulfillment center in Fernley, Nevada.
The company posted fourth-quarter earnings excluding items of 38 cents per share, down from 91 cents in the year-earlier period.
Analysts had expected the Seattle-based company to report earnings excluding items of 17 cents per share on $18.25 billion in revenue.
Amazon has been growing at least twice as fast as the e-commerce sector in recent years. To keep that pace, the company is expanding into new categories and regions, spending heavily on growth, at the expense of profit margins.
According to Wall Street analysts, who cut their price target on the stock by as much as 16 percent, the company's shift to third-party sales is also hurting revenue growth.
Fourth quarter revenue was $17.43 billion, a 35-percentincrease from $12.95 billion a year ago.
"While we had suspected Amazon's first-quarter margin guidance would underscore its ongoing investment spend, we were surprised by its lower-than-expected first-quarter revenue guide," Barclays Capital analyst Anthony DiClemente wrote in a note.
The shift in sales toward third-party sellers has resulted in lower revenue as Amazon recognizes a 5-15 percent commission on these transactions rather than the retail price of the items, Canaccord Genuity analyst Michael Graham wrote in a note.
Graham said third-party seller units doubled year-over-year and made up 36 percent of all paid units shipped during the quarter.
Of the 40 analysts covering the stock, 13 rate it a "strong buy," 12 a "buy," and 14 a "hold," with a mean price target of $233.90, according to Thomson Reuters's Starmine data. Only one analyst rates it a "strong sell."
Amazon shares, which closed at $194.44 on Tuesday on the Nasdaq, have fallen more than 20 percent since hitting a record high in October, partly on concern about how much the company is investing.