jeff bezos kindle reader

Steve Kovach, Business Insider

Earlier today, Amazon reported earnings of $0.38 per share on revenue of $17.4 billion.

Analysts were expecting $0.19 per share on revenue of $18.21 billion. Even the lowest revenue estimates were $17.6 billion.

On its earnings call, Amazon blamed the shortfall on slowing sales in North America, particularly in video games. 

Although Amazon beat earnings estimates, it's a big drop from last year's Q4, where Amazon earned $0.91 per share.

The big reason is a rise in operating expenses, from $12.5 billion in last year's quarter to $17.2 billion this year. A lot of that comes from an increase in cost of goods sold, probably because of Kindle and Kindle Fire manufacturing costs. Headcount also grew 10% during the quarter, to 56,200 employees -- faster than sales or unit growth. Most of those new employees are in support or operations, the company explained on the earnings call.

The stock immediately plunged more than 9% after hours on the bad revenue news, as well as Amazon's outlook for Q1.

The company now expects $12 to $13.4 billion in revenue in the current quarter; analysts were expecting $13.4 billion. Amazon also said it expects earnings to come in between a $200 million loss and a $100 million profit this quarter, which is way down from last year's quarter.

As we saw last quarter, this is Amazon choosing long-term investment over short-term quarter-to-quarter management of results. Wall Street might not like the stock now, but the bet is that in the long run this will make a stronger company.

Like usual, the company did not offer any concrete numbers for Kindle or Kindle Fire sales, saying only that overall Kindle sales were up 177% from last year. That's nearly 3x.

Here are notes from the earnings call:

Capex increases -- additional infrastructure, including warehouses and Amazon Web Services.  "We've just seen such dramatic growth," both on retail offerings, third-party Fulfilled by Amazon, Amazon Web Services. "We feel we're efficiently deploying that capital."

Added 17 fulfillment centers in 2011. Total to 69.

Planning to add more centers in 2012. No exact numbers.

North America revenue decelerating. But strong growth in digital media -- books, video, music, "all grew very well."

Video games revenue declined year over year. Strong third-party offerings, unit growth up, but revenue down. That's why North America media revenue is slowing down.

Kindle Fire data? They're not saying anything new, unit sales of all Kindles were up 177%. "We're very pleased with the great growth we've had."

Both devices grew well -- Fire didn't cannibalize regular Kindle sales.

As far as Kindles leading to Amazon Prime conversions, "we like what we're seeing."

Stock buybacks: "We will take opportunities to buy when it's at the right value."

Will there be a standalone subscription video service? Paid or rental as part of Amazon Video, service as part of Prime (subscription). "We like both of them." But seemed very bullish on Prime and said they're monitoring the opportunities.

Headcount: Up to 56,200. Up 67% from last year, which is higher rate of growth than revenue and unit growth. What are all those people doing and when will that slow down? (Good question.)

Most of those increases are operations and customer service, supporting growth. Seeing it in operating costs.
