Shares in online retail giant Amazon fell by almost 10 per cent in after-hours trading yesterday following the release of sales figures for the fourth quarter of 2013. These figures came in below analysts' expectations, and reveal that Amazon is struggling to maintain the pace of growth it has enjoyed both at home and abroad over the last few years.
The last quarter included the Christmas holiday period and is traditionally an extremely competitive time for retailers. While Amazon's North American sales were strong – growing 26 per cent to $15.3bn (£9.3bn) – rising costs of fuel and distribution meant that profits were lower than anticipated. Because of this, the firm is considering raising the price of its Prime service to consumers from $79 to $99 or more. Prime guarantees delivery within two days in the US and has been a key part of Amazon's cross-selling strategy. Any change in pricing would be likely to alienate millions of customers.
In a conference call, Amazon CFO Tom Szkutak told analysts: "When we launched Prime nine years ago, one of the things we hoped for was customers do a lot more cross-shopping, that they would buy more from us, and we've seen that trend," before going on to stress that no decision has yet been made.
Just after Christmas, Amazon announced its best-ever holiday season. Prime membership was so popular that the company limited new signups during peak periods to ensure that services were maintained. In such an atmosphere, analysts were anticipating more.
While Wall Street had expected earnings of 67 cents a share and a revenue of $26.05bn (£15.8bn), results were just 51 cents a share and a revenue of $25.59bn (£15.55bn) in the fourth quarter.
Amazon continues to grow both at home and abroad. 2013 saw an increase of 22 per cent over the previous year's revenue. However, distribution costs increased by 19 per cent to $1.2bn, and expansion in Europe and Asia was not as rapid as had been expected.
The company has been trying to sustain its rate of growth by investing in retail and distribution networks, while at the same time moving further into areas such as its Kindle devices, cloud computing services and online media such as LOVEFiLM.
Some investors fear that the company is over-reaching itself and that revenues are suffering too much as a result.
"Amazon's got so many hall passes on earnings," Colin Gillis, an analyst at BGC Financial told Reuters news agency, adding that pressure on the company to produce profit is increasing. "Perhaps the market expectations for them to deliver income, as their revenue growth slows [is increasing]."