Amazon's Holiday Hangover

Everyone knew Amazon.com Inc. would have a great holiday season. The question among investors was just how great. The answer apparently is "not great enough."

Amazon announced Wednesday that its fourth-quarter sales reached $650 million, topping the $610 million that it rang up during all of 1998. The fourth-quarter revenues were 2.5 times more than the $253 million the company sold in the fourth quarter of 1998. Amazon also said it added 2.5 million new customers during the last seven weeks of 1999.

By just about any measure, the growth was phenomenal. But in the high-expectation, high-reward world of the Internet, investors were underwhelmed. By midday, Amazon stock had fallen more than 10 points, or 13 percent, following a slide of $7.44, or 8.3 percent, on Tuesday amid a widespread sell-off in technology stocks.

Analysts say the slide in Amazon's share price had little to do with the company's warning that net losses will likely increase, as the company spent heavily to ensure a holiday season without glitches. "Consistent with our strategy, we went all-out to make sure we delivered for customers this holiday season," said Warren Jenson, Amazon's chief financial officer, in a statement.

"As a result, our higher seasonal sales will not translate into lower net losses in the fourth quarter." Jenson also said that Amazon will have higher-than-expected charges as it writes down a massive inventory buildup that helped ensure it would not run out of certain products, particularly in areas such as toys and electronics.

But mounting losses have become routine for Amazon watchers. Instead, investors were disappointed because they had expected the Web's largest retailer to do even better. "While we are impressed by Amazon's strong sales momentum, we are concerned the revenue upside surprise may have been well below some investors' optimistic expectations," wrote Robertson Stephens analyst Lauren Cooks Levitan in a note to investors.

Levitan, whose estimate of $550 million for fourth-quarter sales was topped by 18 percent, downgraded Amazon from "strong buy" to "buy" citing concerns over wider near-term losses. But earlier this week, Levitan said some optimistic investors expected Amazon to take in $750 million and report as many as 5 million new customers.

Bear Stearns analyst Scott Ehrens agreed: "While the strong growth in sales and customers speaks well for the health of Amazon's business, we feel that the numbers fell short of investors' lofty expectations for a blow-away Christmas season," Ehrens wrote in a note to investors.

Amazon also said it shipped a peak of $16 million in one day, more than many retailers ship in an entire year, and delivered 99 percent of orders in time to meet holiday deadlines.

The growth at Amazon appears to be roughly in line with the overall rise in Internet sales this holiday season. On Tuesday, AOL, which operates the Net's largest online mall, said its members had spent more than $2.5 billion online, more than double the number spent last year. Meanwhile, Shop.org said holiday sales will reach an estimated $11 billion this year, a rise of more than 300 percent from last year, according to a survey it conducted.

Amazon will report full fourth-quarter results on Feb. 2.

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