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.

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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.