Nothing Wrong With Amazon.com’s Financial Results

There was nothing wrong with Amazon.com’s (NYSE: AMZN) quarterly results when they are viewed through the lens of  the e-commerce company’s battle with the bricks-and-mortar sector. America’s largest retailers have  begun to challenge Amazon, and there are reasons to believe that corporations like Wal-Mart Stores (NYSE: WMT) are a real threat.

Comscore data shows that Amazon.com had 91.1 million unique visitors in the US during December. Wal-Mart’s online operations had 51.4 million. Target (NYSE: TGT) reached 37.3 million, Best Buy (NYSE: BBY) hit 23.3 million and Sears (NASDAQ: SHLD) reached 28.7 million unique visits. The figures are a sign that Amazon.com had very strong competition for the holidays.   Nonetheless, their revenue from online has not grown nearly as fast as Amazon’s.

Amazon’s CEO Jeff Bezos has been criticized before because his company did not watch costs closely enough. In 2006 Amazon’s net income fell to $190 million from $354 the year before while revenue rose from $8.5 million to $10.7 billion. Amazon’s management had decided to increase its shipping and marketing costs. The e-commerce company’s results have justified the decision. Amazon’s stock traded at $39 in late 2006. That number was $180 recently.

Successful American companies have often made investments in the hope of improving their profits and market share in the years ahead of them. Microsoft lost hundreds of millions of dollars on its Xbox franchise. The most recent version of that product, the Kinect, was critical to the relatively strong earnings Microsoft posted for last quarter.

Google (NASDAQ: GOOG) plans to add 6,000 employees which would move its total workforce size to nearly 30,000. Wall St. has complained. Google only has one significant business – online search. The increase in employees will only hurt profits. It also may be the only way for Google to improve its bottom line over the long run.

Amazon’s investment program paid off in 2006. It will again, particularly because the competition has become more powerful and Amazon needs to keep an edge.

Douglas A. McIntyre