Shares of Amazon.com (Nasdaq: AMZN) tumbled 8-13/16 to 73-1/8 in early trading today after the company announced that its strong fourth-quarter sales would not reduce its net losses. The reason is largely because Amazon.com spent a lot of money making sure that holiday orders were fulfilled properly.
Amazon.com had impressive fourth-quarter sales of $650 million, which was an increase of nearly $400 million compared to last year’s quarter and more than the $610 million in sales for all of 1998.
Amazon.com’s inability to reduce its net losses, however, underscores how hard and expensive it is for e-commerce stores to fulfill orders. Some online retailers, especially toy retailers, struggled to deliver all their holiday orders in time for Christmas.
Toys “R” Us, in fact, went so far as to send packages via Federal Express at their own expense and deliver gift certificates for their brick-and-mortar stores to some customers.
The cost of acquiring and keeping a customer looks like it is higher than many people anticipated.
“Consistent with our strategy, we went all-out to make sure we delivered for customers this holiday season,” said Warren Jenson, chief financial officer for Amazon.com. “As a result, our higher seasonal sales will not translate into lower net losses in the fourth quarter. In addition, we will incur higher-than-expected inventory-related charges and write-downs, in large part because we carried deep inventory in start-up businesses such as toys and electronics.”
Investors will not like the sound of that.