Amazon (AMZN) Investors Hit Exits on Q4 Numbers, Outlook; Analysts Chime In

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Are investors overreacting to Amazon.com's (Nasdaq: AMZN) quarterly release? Or is it more than a near-term hiccup?

Both, or neither, really. Amazon is much lower Wednesday following its dismal fourth-quarter numbers and bleak outlook issued late-Tuesday, after the close of the market.

Revenues rose 35 percent but profits dropped 57 percent. Why? Well, Amazon is spending money on expanding warehouses, technology, and support for it's Kindle e-readers. Spending on fulfillment centers alone rose 52 percent to $1.66 billion.

Looking ahead, the e-tailer sees first-quarter revenues of $12.0 billion to $13.4 billion.

Here's what the analysts are saying. Many comments point to near-term weakness for Amazon, with mixed thoughts about longer-term prospects:

Benchmark Securities said the results were disappointing, driven by a slowdown in worldwide Media sales. saying "much of the downside to 1Q guidance may be attributable to elevated D&A due to ongoing investment spending."

Benchmark is keeping its outlook unchanged being that they were already below the consensus. Benchmark said, "better than expected gross profit margins may offset increased operating costs, resulting in an unchanged OIBDA estimate at $3 billion."
Wells Fargo commented that "[we] continue to believe AMZN should be a core growth holding for patient investors who are able to weather short-term fluctuations in profitability (and the stock price)."

Wells made the following points:
- Amazon called out several categories that saw strong growth in Q4: softlines (particularly clothing), driven in part by the launch of Amazon’s flash sale site, MYHABIT, consumables (at both Amazon as well as Quidsi sites Soap.com and Diapers.com), and consumer electronics;
- Despite the shift to digital goods and the “very, very strong growth” seen in digital media in Q4, Amazon noted it is still seeing double-digit growth in physical books.
- Amazon's third-party business continued to accelerate in Q4, representing 36 percent of paid units vs. 32 percent last year. This should help Amazon broaden and deepen its product selection over time, making it more competitive with specialty retailers across non-core categories. Growth in the third-party business also helps smaller merchants grow under the umbrella of Amazon’s enormous traffic; and
- Customers are continuing to take advantage of Amazon's free shipping programs (Prime and Super Saver Shipping), as shipping costs grew 47% yr/yr, outpacing paid shipping revenue which grew 22 percent.

Other firms making comments today include Canaccord Genuity, Goldman Sachs, Jefferies, Baird, Deutsche Bank, and Collins Stewart. For more analyst color on the numbers, click here.

As an interesting side note, a WSJ article asked what people thought about "Amazon.com's strategy which sacrifices short-term profitability with an eye on long-term gains?" Over 80 percent of respondents though it was a "smart plan with big upside," while the rest thought it was a "risky gamble that may not pay off."

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