Amazon loss widens despite climbing sales

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SAN FRANCISCO: Internet retail titan Amazon has reported a money-losing quarter despite impressive growth in sales, sending shares plummeting by more than 10 percent.

The Seattle-based firm said that it had a net loss of $126 million in the quarter that ended June 30, widening the deficit from $7 million in the same period a year earlier.

Sales, meanwhile, climbed to $19.34 billion in a 23 percent rise from the second quarter of last year.

Amazon shares plunged more than 10 percent to $322.20 in after-market trades that followed release of the earnings figures.
The loss came as Amazon poured money into a new Fire smartphone, original programming for its Prime subscription service, drone package delivery and more.

“We continue working hard on making the Amazon customer experience better and better,” Amazon founder and CEO Jeff Bezos said in the earnings release.
He rattled off a list of recent Amazon product or service introductions that included improved delivery operations in the US and Europe; a streaming music service, and Kindle Unlimited all-you-can-read book subscriptions.

“I feel like this is ‘Groundhog Day’ over and over again,” Forrester analyst Sucharita Mulpuru said, comparing Amazon earnings to a Bill Murray comedy film about a man perpetually reliving the same day.

“I don’t know how much longer it can keep going.”

Mulpuru was skeptical of the argument that Amazon is investing heavily for the future, noting that Google and Apple pour money into innovation but manage to make profit along the way.

“Apple created the iPad; Google has Fiber, Glass and driverless cars and they are still pulling profit,” Mulpuru said.
“So what is Amazon’s excuse?“

The analyst suspected that Amazon was actually investing in shipping systems, dynamic pricing algorithms, and cutting prices to grab market share in moves “effectively decimating a lot of retailers.”

Investors betting on Amazon gaining a near monopoly and then jacking prices will likely be disappointed, the analyst reasoned.

Regulators would likely weigh in under those circumstances, and major retail players such as Wal-mart won’t go quietly into that good night, Mulpuru said.
Amazon forecast that its sales would continue to grow impressively this quarter, climbing from 15 percent to 26 percent to as high as $21.5 billion when compared with the prior year.

The online retailer expected its operating loss to widen, possible to as much as $810 million in contrast to a $25 million operating loss logged in the third quarter of last year.

Amazon will spend more than $100 million this quarter on original shows, putting those promised into production and cranking out pilot episodes for new projects, chief financial officer Tom Szkutak said during an earnings call.

“We will be ramping up the spend on video content significantly,” Szkutak said, noting that Amazon likes what it has seen so far regarding its foray into original programming.

“We’ve greenlighted a number of pilots and will be in heavy production during the third quarter.”

Ranks of subscribers to a Amazon Prime service that includes streaming video has “grown nicely” and the company is extremely pleased with response it has seen to recently launched Kindle Unlimited e-book subscriptions, according to the chief financial officer.

Amazon said it is also investing in expanding geographically in China, Spain, India and elsewhere.

“We are encouraged by the sheer magnitude of opportunities we have and are investing in those opportunities.”

Amazon’s broad strategy is to reach more people and connect with them at more points in their lives, according to Daymon Worldwide vice president of consumer strategy Virginia Morris.

“It is much more about being everything for every consumer, and the profitability will come,” Morris said.

Fire smartphones tightly woven to Amazon services and shopping began arriving in buyers’ hands on Thursday.

Szkutak said that Amazon was confident Fire would hold its own as a viable contender in the fiercely competitive smartphone market as well as promote books, games, videos and other money-making offerings from the company.

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Amazon reports $126m quarterly loss
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Amazon has reported a loss of $126m (£74m) in the second quarter and warned that sales could slow in the current quarter.

Amazon forecast third quarter sales of between $19.7bn and $21.5bn, which could mean sales growth of as little as 15% - well down on previous quarters.

Amazon has traditionally survived on thin profit margins, but investors have been reassured by strong sales growth.

But today's warning over sales has spooked investors.

In after hours trading in the US shares slumped by 6%.

Digital content
Amazon has been investing heavily to build up its business, including the launch last month of its first smartphone - the Fire Phone.

It has been developing digital content including computer games and TV shows.

In its conference call the company said that producing its own TV shows would cost $100m in the third quarter.

Amazon has also been spending money on improving its delivery systems which includes expanding Sunday delivery to 18 cities in the United States.

Web services
Another major cost of Amazon has been the building of its Amazon Web Services business.

It provides computer services and storage for businesses and has been growing very quickly.

To match that growth Amazon has been investing heavily in infrastructure and has hired "thousands" of staff for the web services operation.

All that has contributed to a negative net income of $126m in the second quarter, which compares with a loss of $7m in the same quarter in 2013.

That loss came despite a 23% jump in second quarter sales to $19.3bn.

Analysis

Leo Kelion, BBC Technology Desk Editor

Amazon's enjoyed strong growth in its sales over the past quarter - its 23% revenue rise on last year's figure was bang on target for Wall Street's predictions.

But what makes investors nervous is that its net loss was nearly double what had been forecast.

What's more, it has warned that it might sink further into the red during the current period.

In short, Amazon's growing list of investments is hurting its bottom line - at least in the short term.

Developing new products such as its Fire Phone, Fire TV set-top box and Dash grocery scanner haven't come cheap.

The company also pointed to the need to invest in the expansion of its web services division - the behind-the-scenes computing power it rents out to clients including Netflix, Nasa and the CIA, as well as smaller app creators.

On top of that the firm has rolled out Sunday deliveries in the UK and US, commissioned new TV shows for its Prime subscribers and expanded its operations in India and China.

Benefit of the doubt
In the past, shareholders have been willing to give Amazon the benefit of the doubt - foregoing dividends today for the promise of it being in an even stronger position to pay out in the future.

But they may be concerned about how many bets it is taking at once - this week's lacklustre reviews for the Fire Phone can't have helped.

The size of today's sell-off indicates that some at least want more reassurance - particularly since Amazon refuses to break down its numbers to reveal exactly how its different products are performing.