Bezos Finally Cares About Operating Margins at Amazon

The company gave guidance for the first quarter as net sales in the range of $20.9 billion to $22.9 billion, and the operating income, or loss, is expected to be between -$450 million and $50 million. There are consensus estimates of $0.12 in EPS and $23.05 billion in revenue.

Operating income for the fourth quarter was $591 million, which would put Amazon’s operating margin as a percentage of worldwide sales at 2%. Operating income in the same quarter the year before was $510 million. Still, net income was $214 million, versus $239 million in the same quarter the prior year.

Overall net sales increased 18% from the previous year. Net sales for North American segment grew 22% to $18.7 billion from the same period in the previous year. Net sales for the International segment were up only 3% to $10.6 billion.

During this quarter, Amazon announced Prime Now, a new service offering paid one-hour and free two-hour delivery on tens of thousands of daily essentials via a new mobile app. The service is currently available in Manhattan and will expand to other cities this year.

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Jeff Bezos, founder and CEO of Amazon.com, said:

When we raised the price of Prime membership last year, we were confident that customers would continue to find it the best bargain in the history of shopping. The data is in and customers agree — on a base of tens of millions, worldwide paid membership grew 53% last year — 50% in the U.S. and even a bit faster outside the U.S. Prime is a one-of-a-kind, all-you-can-eat, physical-digital hybrid — in 2014 alone we paid billions of dollars for Prime shipping and invested $1.3 billion in Prime Instant Video. We’ll continue to work hard for our Prime members.

In the days ahead of earnings, analysts made calls for Amazon:

• B. Riley reiterated a Neutral rating with a price target of $296.
• J.P. Morgan had a Neutral rating but increased its price target to $323 from $307.
• RBC Capital had an Outperform rating and lowered its price target to $410 from $420.

The highest listed analyst price target of $450 comes from Argus and implies upside of 44.3% from Thursday’s close.

Shares of Amazon closed Thursday up 2.6% at $311.78. In after-hours trading, shares were up about 7% at $332.68. If this holds up, maybe Jeff Bezos has decided that Amazon will operate as a business again rather than as a charity with almost zero-margin. The stock has a consensus analyst price target of $359.11 and a 52-week trading range of $284.00 to $406.25.

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