Amazon reports profit plummeting, stocks hit record high

Bizarro world in Wall Street.

Wall Street really is bizarro-land. Yesterday afternoon, Amazon reported that growth in revenue and earnings per share for the fourth quarter of 2012 was below expectations ($21.27bn and $0.21 respectively), and that profit actually fell year-on-year for the same period (down to $97m). In addition, the company gave weaker-than-expected sales guidance for the first quarter of 2013, estimating $15-16.6bn versus expectations of $16.9bn.

In response to the news, shares jumped 11 per cent in after-hours trading, to an all-time high for the company. (The increase has settled down since to just 8.5 per cent.)

Matt Yglesias gives the best response:

Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers… Amazon sells things to people at prices that seem impossible because it actually is impossible to make money that way.

As I wrote last week, it's this side of Amazon, far more than its UK tax avoidance, which is ultimately responsible for the demise of HMV. The company apparently has the most trusting, long-termist investors in the world, who are prepared to wait through quarter after quarter of negligible growth — and outright loss — to reach the mythical period when the company will become profitable.

Some of the news in Amazon's earnings call does imply that that period might be getting closer. The company announced that ebook sales was a "multi-billion dollar" category, and grew by 70 per cent in the last year, compared to just 5 per cent growth for physical book sales. With Amazon aggressively fighting to cut out middlemen from ebooks, and the naturally low marginal cost of selling them, the potential for a higher profit margin is there. But the company, for the moment, is responding by cutting prices (even down to zero), not increasing its margin.

And ultimately, even if investors do think that profitability for Amazon will come in their lifetime, they have to take it on trust, because the company also shows no hint of changing its pattern of being one of the most opaque in the business (even Apple releases more hard numbers than Amazon). There are no numbers at all for Kindle sales, more are there absolute figures for ebook sales.

One day, Amazon may succeed in out-competing every other retailer, and gaining monopoly profits. But there's no hint here that that day is nearing.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
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Why are boundary changes bad for Labour?

New boundaries, a smaller House of Commons and the shift to individual electoral registration all tilt the electoral battlefield further towards the Conservatives. Why?

The government has confirmed it will push ahead with plans to reduce the House of Commons to 600 seats from 650.  Why is that such bad news for the Labour Party? 

The damage is twofold. The switch to individual electoral registration will hurt Labour more than its rivals. . Constituency boundaries in Britain are drawn on registered electors, not by population - the average seat has around 70,000 voters but a population of 90,000, although there are significant variations within that. On the whole, at present, Labour MPs tend to have seats with fewer voters than their Conservative counterparts. These changes were halted by the Liberal Democrats in the coalition years but are now back on course.

The new, 600-member constituencies will all but eliminate those variations on mainland Britain, although the Isle of Wight, and the Scottish island constituencies will remain special cases. The net effect will be to reduce the number of Labour seats - and to make the remaining seats more marginal. (Of the 50 seats that would have been eradicated had the 2013 review taken place, 35 were held by Labour, including deputy leader Tom Watson's seat of West Bromwich East.)

Why will Labour seats become more marginal? For the most part, as seats expand, they will take on increasing numbers of suburban and rural voters, who tend to vote Conservative. The city of Leicester is a good example: currently the city sends three Labour MPs to Westminster, each with large majorities. Under boundary changes, all three could become more marginal as they take on more wards from the surrounding county. Liz Kendall's Leicester West seat is likely to have a particularly large influx of Tory voters, turning the seat - a Labour stronghold since 1945 - into a marginal. 

The pattern is fairly consistent throughout the United Kingdom - Labour safe seats either vanishing or becoming marginal or even Tory seats. On Merseyside, three seats - Frank Field's Birkenhead, a Labour seat since 1950, and two marginal Labour held seats, Wirral South and Wirral West - will become two: a safe Labour seat, and a safe Conservative seat on the Wirral. Lillian Greenwood, the Shadow Transport Secretary, would see her Nottingham seat take more of the Nottinghamshire countryside, becoming a Conservative-held marginal. 

The traffic - at least in the 2013 review - was not entirely one-way. Jane Ellison, the Tory MP for Battersea, would find herself fighting a seat with a notional Labour majority of just under 3,000, as opposed to her current majority of close to 8,000. 

But the net effect of the boundary review and the shrinking of the size of the House of Commons would be to the advantage of the Conservatives. If the 2015 election had been held using the 2013 boundaries, the Tories would have a majority of 22 – and Labour would have just 216 seats against 232 now.

It may be, however, that Labour dodges a bullet – because while the boundary changes would have given the Conservatives a bigger majority, they would have significantly fewer MPs – down to 311 from 330, a loss of 19 members of Parliament. Although the whips are attempting to steady the nerves of backbenchers about the potential loss of their seats, that the number of Conservative MPs who face involuntary retirement due to boundary changes is bigger than the party’s parliamentary majority may force a U-Turn.

That said, Labour’s relatively weak electoral showing may calm jittery Tory MPs. Two months into Ed Miliband’s leadership, Labour averaged 39 per cent in the polls. They got 31 per cent of the vote in 2015. Two months into Tony Blair’s leadership, Labour were on 53 per cent of the vote. They got 43 per cent of the vote. A month and a half into Jeremy Corbyn’s leadership, Labour is on 31 per cent of the vote.  A Blair-style drop of ten points would see the Tories net 388 seats under the new boundaries, with Labour on 131. A smaller Miliband-style drop would give the Conservatives 364, and leave Labour with 153 MPs.  

On Labour’s current trajectory, Tory MPs who lose out due to boundary changes may feel comfortable in their chances of picking up a seat elsewhere. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog. He usually writes about politics.