Amazon shares plunge as profits fall short of analyst estimates

Even as Amazon posted record profits for the fourth quarter ended 31 December, its shares plummeted on 28 January. The company's shares were down 12% at close.

Following the holiday season, the world's number one online retailer announced that its net profits stood at $482m (£335m, €440m). However, the figure failed to live up to Wall Street estimates, which sent its shares spiralling. Amazon's announcement saw the firm achieve three straight profitable quarters for the first time since 2012.

Experts had estimated profits to touch $754m (£523m), which was the primary reason for the decline in share prices. Commenting on the fall, Neil Saunders, head of the retail analyst firm Conlumino told Reuters: "By comparative retail standards, Amazon's level of profitability is still painfully weak. For every dollar the company takes, it makes just 0.75 of a cent in profit."

The Seattle-headquartered company has been focusing on spending more on its new feature, Prime – a members-only service that has its roots in free two-day shipping. The feature provides customers additional privileges such as one-hour delivery, original TV programmes, unlimited pictures and song storage in the company's cloud drive and free books. The feature has gained popularity among customers in the US, with the company announcing 35% increase in membership over the last 12 months.

Analysts believe that rising operating cost is the root cause of the decline in share prices. Amazon is investing heavily on its delivery system and has increased its budget on drone technology. The company is also looking to move into the ocean freight market and expand its delivery services.

Chief financial officer for Amazon, Brian Olsavsky stood in defence of the company's financial results, claiming that foreign exchange rates impacted the company's results more than expected. However, he maintained that Amazon had "a very strong quarter and a strong year".