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People spent $8B more on Amazon over the holidays, yet investors are disappointed

Capitalism is weird.

Amazon, comfortably the world’s biggest online retailer, announced on Thursday that in the three months over the holiday period, it increased its sales to $43.7 billion – $8 billion more than the same period in 2015.

On top of this, its net profits went from $482 million to $749 million in the fourth quarter. And profits for the year rose to $2.4 billion, up from $596 million a year before.

That sounds like reason to cheer, but what happened after the figures were announced? Amazon’s share price dropped more than 4 percent.

That’s because investors were expecting a better performance. The Guardian reports analysts polled by Reuters had expected sales for the fourth quarter to hit $44.68 billion, with Chief Financial Officer Brian Olsavsky saying the company took a $800 million hit from foreign exchange rates.

Adding to the concern among investors is that Amazon is predicting rising sales, but lower profits, in the first quarter of 2017 amid further uncertainty over foreign exchange rates at a turbulent time for global firms.

The disappointment comes despite this being the seventh consecutive quarter in which Amazon has reported profits, as it continues to overcome criticisms in the past that it was more concerned with growth than profit.

Nonetheless, it doesn’t change the fact that people bought a crap-ton of stuff from Amazon over the festive period.

Third-party sellers are booming on Amazon

Another reason that Amazon may not be hitting its sales expectations: it’s becoming increasingly a place where third-party companies sell their goods, rather than Amazon selling directly.

Although Amazon has millions and millions of items for sale, the company notes in their results that the number of Fulfillment by Amazon (FBA) companies – meaning they sell their goods on the website, which Amazon then delivers – rose by 70 percent in 2016.

Some 2 billion items were sold by FBAs last year from companies based in more than 130 countries. And more than 100,000 sellers have sales of $100,000 or more.

Morningstar senior retail analyst RJ Hottovy told CNBC that this ongoing shift to being a third-party marketplace is going to have an impact on Amazon’s revenue because it doesn’t get as big a cut of the sale compared to goods it sells itself.

Something else weighting on profits is Amazon’s seemingly endless drive to build infrastructure as it tries to keep up with the booming demand from shoppers, who are increasingly buying their goods online.

One interesting aspect of Amazon’s performance over the past year is its ongoing move into entertainment. The company has ramped up the original content available to Prime subscribers through Amazon Video, with The Grand Tour, Transparent and The Man in the High Castle among its original successes.

And it’s not just television, but movies too. Manchester by the Sea, the Casey Affleck movie that has been nominated for seven Academy Awards including Best Picture, was released by Amazon Studios.

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