Despite fluctuating margins and slowing growth, Amazon’s shares rose after the giant e-tailer posted its 2012 and fourth-quarter financials. Amazon emphasised the shift in its business away from physical products, describing its e-book business as a “multi-billion dollar category”, compared to physical book sales, which experienced the lowest December growth rate in Amazon’s 17 years as a bookseller.
Amazon saw sales growth of 22% to $21bn (£13bn) in its fourth quarter, while operating income increased 56% to $405m. In its full year, net sales increased 27% to $61.1bn, while operating income decreased 22% to $676m. The business made a loss of $39m after tax, compared with a profit of $631m last year.
Jeff Bezos, c.e.o. of Amazon, said: “We’re now seeing the transition we’ve been expecting. After five years, e-books is a multi-billion dollar category for us and growing fast—up approximately 70% last year. In contrast, our physical book sales experienced the lowest December growth rate in our 17 years as a bookseller, up just 5%.”
The company also said that its Kindle Fire HD tablet continued to occupy the top sales spot worldwide, although no tablet sales figure was given. The company added: “At year-end, Kindle Fire HD, Kindle Fire, Kindle Paperwhite and Kindle held the top four spots on the Amazon worldwide bestseller charts since launch.”
Despite the rise of its e-book business, Amazon’s media division recorded the lowest growth rates of all its categories, up 15% in North America in 2012, and up 9% internationally.
Amazon’s shares rose 8% after hours to $281, close to an all-time high, with investors pointing to higher margins in Q4 2012 compared with 2011. Amazon’s gross margin grew to 24.1% from 20.7% a year earlier, though its operating margins rose only slightly, from 1.5% a year ago to 1.9% by its fourth quarter. At the end of 2010 its operating margin was 3.7%. But its North American operating margins ended the period on a high, at 5%.
Amazon also stressed that its free cashflow decreased 81% to $395m for the trailing 12 months, compared with $2.1bn for the trailing 12 months ending 2011. Amazon remains strongly cash positive: it generated cash of $4.2bn from its operating activities in 2012, and ended the year with a cash pile of $8.1bn. Yet it has been investing heavily in new product development around its Kindle devices, and it has also opened 20 distribution centres closer to customers in order to reduce postage fees. In the fourth quarter alone, the company spent $2bn on property and equipment, including software and website development—more than it spent across 2011 as a whole.
International sales, which includes the UK, spiked by 20% to $9.1bn, with full-year sales of $26.3bn. Yet it made only a marginal profit: $76m compared with $640m, an 88% decline. Amazon launched Kindle Stores for Brazil, Canada, China and Japan. Its international profit margins have declined from 5.7% at the end of 2010 to 0.8% by the final quarter of 2012.
Amazon’s third-party business rose by 50% in 2012, from $6.1bn to $9.4bn.
Thomas Szkutak, chief financial officer, told investors in a conference call that its profitability was dependent on the product mix in individual territories, and that there were “geographies that we are investing in heavily that have a longer-term horizon for returns”, singling out China. He also said the business planned to continue to grow its physical presence both in the US and globally, particularly via its fulfilment centres.