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Amazon Misses Revenue Forecasts Twice in a Row, Calling Long-Term Growth Potential Into Question


Amazon had better-than-expected earnings, but revenues and guidance disappointed.

Retail giant -- and yes, I am talking all of retail -- (AMZN) delivered its fourth-quarter earnings results after the closing bell yesterday, and it's got shareholders in the house of pain this morning.

Amazon earned $0.38 per share, easily smashing the consensus estimate of $0.19. However, Amazon's revenues came in at $17.4 billion, which was about 5% below consensus.

The revenue drag came from the media segment, which grew by just 15% year-over-year. Electronics and general merchandise sales, on the other hand, grew by a whopping 48%.

For the first quarter of 2012, the company expects revenues of $12 billion to $13.4 billion, the midpoint of which is 5% below the average analyst forecast of $13.4 billion. Amazon also expects operating income to come in between negative $200 million and $100 million, which is well below expectations.

In terms of products, Amazon said that Kindle unit sales, which include the Kindle Fire tablet, grew by 177% year-over-year. In addition, the Kindle Fire has been the best-selling, most gifted, and most-wished-for product on Amazon since its introduction. Of course, Kindle products have the unique benefit of being glued to the Amazon's home page. (See 3 Reasons Amazon Could Make the Only Android Tablet That Matters.)

The Kindle Fire's success makes one thing clear -- Amazon is on top of the Android tablet scrapheap. In fact, it is the only real success story in tablets outside of Apple (AAPL), which sold an incredible 15.4 million iPad units in the fourth quarter, representing 111% year-over-year growth.

Amazon also noted that the number of videos purchased or rented from Amazon Instant Video and the number of Amazon Instant Video customers more than doubled year-over-year. That's good to see, though that's likely a doubling off a small base. It's important to note that Amazon's success in online video doesn't appear to have impacted Netflix (NFLX), which is starting to regain some of the momentum it lost in 2011. (See Netflix Pulverizes the Bears After a Rare Positive Surprise.)

Amazon's Appstore for Google (GOOG) Android smartphones saw customers nearly tripling quarter-over-quarter, with downloads exceeding that of all previous quarters combined. However, keep in mind that Amazon gives away an awful lot of free apps, which could be driving the growth.

So what does this all mean?

Well, Amazon bulls are in a bit of a pickle.

Historically, traders have been more than willing to overlook Amazon's lack of margin leverage because the revenue growth has been so amazing. In fact, I have literally zero doubt that CEO Jeff Bezos is an off-the-charts genius, and that Amazon is the Wal-Mart (WMT) of tomorrow.

But Amazon was trading at 106 times expected 2012 earnings heading into a quarter that marked the second straight revenue and guidance disappointment in a row. Revenue growth kept the stock levitating, and now it's looking to be a bit slower than previously thought.

Now, two disappointments in a row certainly doesn't mean the end of the world is near -- but what do you worry about after two straight revenue misses? A third! So now, investors' intermediate and long-term forecasts are really starting to come into question.

Remember, over a 10-year period, a difference of just a few percentage points' worth of growth makes a big, big difference.

Just take a look at this chart, which illustrates various revenue-growth scenarios for Amazon:

(click to enlarge)

Obviously, growth for any company is never this linear, but you get the point.

In terms of pin action, Amazon's results are immediately bearish for Best Buy (BBY). The insane growth in Amazon's electronics and general merchandise segment implies enormous market-share gains. Ever wonder why Best Buy can't grow? Because the Amazon of today is a much bigger and nastier competitor than Circuit City (R.I.P.) was five years ago!

The good news is that at least in early trading, Amazon's disappointment isn't having an appreciable impact on the broader markets. The NASDAQ (^IXIC) is up this morning even though Apple is barely in the green, mostly due to good action in the semis, which are in a good mood following Broadcom's (BRCM) strong report yesterday.

Twitter: @MichaelComeau

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