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Amazon’s Shares Slumped by 14% on Lower-than-Estimated 4Q15 Earnings

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Amazon’s 4Q15 earnings highlights

E-commerce giant Amazon.com (AMZN) reported its 4Q15 earnings on January 28, 2016. The company’s major peers Google (GOOG), Yahoo (YHOO), and LinkedIn (LNKD) will disclose their financials later this week. But Amazon’s disclosure sounded a negative note, and the market reaction remained hostile, which drove Amazon’s shares down by 14%—despite the fact that the company achieved its highest quarterly growth ever.

The reason for this appears to have been that Amazon’s top and bottom line both fell below analyst estimates, even though these figures came within the range of the company’s guidance. Notably, Amazon constitutes 9.1% of the PowerShares NASDAQ Internet Portfolio (PNQI).

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Shipping costs narrowed margins

Amazon reported revenues and diluted EPS (earnings per share) of $35.7 billion and $1.00, respectively, in 4Q15, down from analyst estimates of $36 billion and $1.63, respectively, for 4Q15. The company seems to have benefited most from the strong holiday season sales in 2015. According to a report from IBM (IBM), online sales on Cyber Monday 2015 grew by about 18% over 2014. However, the increase in sales came with high shipping costs, which reduced holiday season margins.

In Amazon’s 4Q15 earnings call, CFO Brian Olsavsky clarified that the company uses its newly acquired Amazon trucks “primarily for movement between our warehouses and our sort centers,” and made clear that Amazon still relies on its carrier partners and will continue to work with them.

Guidance for 1Q16

For 1Q16, Amazon expects its net sales to be within a range of $26.5 billion–$29.0 billion, which would mean an increase of 17%–28% over 1Q15. The company’s operating income is expected to fall in the range of $100 million–$700 million in 1Q16, compared to $255 million in 1Q15.

Continue to the next part for our analysis of the 4Q15 performance of Amazon Web Services.

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