Some days you are the grass and others you are the lawn mower. In the case of Amazon.com (NASDAQ:AMZN), Friday, Jan. 31, was a day that the company was a great big pile of grass. After reporting earnings that fell short of analyst estimates a day earlier, shares of the world's largest e-commerce site fell 11%. But with the company's shares trading 12% below their 52-week high, is now a great time to jump into the fray, or would the Foolish investor be wise to sit on the sidelines?
Amazon just couldn't deliver
For the quarter, analysts expected revenue to come in at $26.1 billion, 22.5% higher than the $21.3 billion the company reported in the same quarter a year earlier. Unfortunately for shareholders, revenue only came in at $25.6 billion, notably lower than Mr. Market's expectations.
According to the company's earnings release, the primary driver behind the rise in revenue was the North America segment. Compared to the same quarter a year earlier, this segment saw revenue rise 26% to $15.3 billion. International sales were another story entirely. When pitted against the fourth quarter of 2012, the company's international segment only grew by 13% to $10.3 billion.
In terms of earnings per share, the situation appears even worse. Whereas Mr. Market hoped to see earnings of $0.67, the company reported that earnings came in at $0.51. The primary reason for the earnings-per-share shortcoming was a rise in the company's fulfillment, marketing, and technology and content expenses relative to sales. Although this is disappointing, it does represent an attractive gain compared to the $0.21 reported a year earlier.
But should this come as much of a surprise to shareholders?
The past four years have been interesting for Amazon, to say the least. Between 2009 and 2012, revenue at the company grew an impressive 149% from $24.5 billion to $61.1 billion. When adding on 2013's revenue of $74.5 billion, the company's five-year revenue growth comes out to 204%. This is significantly greater than the four-year revenue growth experienced by rival eBay (NASDAQ:EBAY) and has been the primary driver behind the company's rising share price.
However, there has been some downside to this growth. In an effort to improve the company's revenue, management has had to forgo profitability. Between 2009 and 2012, the company's net income declined from $902 million to -$39 million. This is far worse than eBay's performance but surpasses the numbers posted by Groupon (NASDAQ:GRPN).
Over the same period, eBay saw its net income inch up 9% from $2.4 billion to $2.6 billion. Despite soaring revenue, the company has faced rising costs that have kept its bottom line from keeping up with its top-line growth. Chief among these has been the company's spending on research and development, which nearly doubled to $1.6 billion by 2012.
Groupon is another story entirely. The online coupon, travel, and goods site has seen its revenue jump from $14.5 million to a whopping $2.3 billion in the past four years. In spite of this, though, the company's bottom line has shrunk significantly, with its net loss of $1.3 million widening to a loss of $54.8 million. Just as in the case of Amazon, Groupon has focused on growing even at the expense of lost profitability today.
As we can see, Amazon's performance this quarter was far lower than what Mr. Market expected. In the case of most companies, this could signal a decline in its future prospects, but shareholders should remember that there is plenty to be happy about concerning Amazon. Not only is the company the largest e-commerce site on the planet, it's also growing rapidly in spite of its size.
Although revenue came up short in 2013, it still grew 22% compared to 2012. In the long run, Amazon will likely continue this run, but its growth has to slow at some point. When it does, shareholders will focus more intently on profitability, and rightfully so. In the meantime, though, now might be a good time to consider purchasing shares of the business, because in the long run, the company will likely grow far larger than it already is right now.