SHARING AMERICA'S TECH NEWS FROM THE VALLEY TO THE ALLEY
Amazon.com Inc. (AMZN) reported a surprise net loss as the world’s largest online retailer continued to pump money into warehouses and digital content to fuel sales growth at the expense of profits.
The second-quarter net loss was $7 million, or 2 cents a share, compared with profit of $7 million, or 1 cent, a year earlier, the Seattle-based company said in a statement today. Analysts had projected net income of $28.8 million on average, or 6 cents, according to data compiled by Bloomberg.
Chief Executive Officer Jeff Bezos is betting that near-term investments on cloud computing and a massive fulfillment infrastructure that lets the company deliver anywhere in the country in two days will provide cash flow down the line. Operating expenses rose 23 percent in the latest quarter, as the company built out its digital media business, which delivers books, music and shows to its Kindle handheld devices.
“The clock is ticking for Amazon to show that it can sell its goods and services while making a profit that might start to justify its market capitalization,” said Colin Gillis, an analyst at BGC Partners LP in New York who rates the shares hold.
Revenue rose 22 percent to $15.7 billion from $12.8 billion, matching analysts’ average estimate.
Amazon fell as much as 5.7 percent in extended trading. The shares advanced 1.5 percent to $303.40 at the close in New York, leaving them up 21 percent this year, compared with a 19 percent gain in the Standard & Poor’s 500 Index.
Revenue in the current quarter will be $15.5 billion to $17.2 billion, Amazon said, compared with the average analyst estimate of $17 billion.
Amazon, which began as an online seller of physical books in 1995, now sells everything from apples to treadmills to millions of customers. It’s also used its Prime membership service to boost loyalty. Members of the program, which ships packages in two days, spend three to four times more than non-members, according to Colin Sebastian, an analyst at Robert Baird & Co. in San Francisco who rates the stock the equivalent of a buy.
Shipping as a percentage revenue was 4.6 percent, the same as the previous year. Warehouses that are being built closer to customers — something that should reduce Amazon’s shipping costs over time — aren’t yet at a scale that can add to profit.
“We’re investing very heavily into the business,” Tom Szkutak, Amazon’s chief financial officer, said in a conference call. “We’re continuing to add capacity. We’re investing for the large opportunites we have in front of us.”
Szkutak said Amazon is already making investments for the fourth-quarter holiday shopping season and “revving up video content.”
While the online retailer ended 2012 with a loss of $39 million, investors have rewarded Bezos’s investment strategy with one of the highest valuations among the company’s peers. Amazon is trading at 55 times next year’s earnings, compared with a price-to-earnings ratio of 16 for EBay Inc. (EBAY), according to data compiled by Bloomberg.
Amazon is competing in a U.S. e-commerce market that’s projected to increase to $370 billion in 2017. Operating margin in North America, the company’s most mature market, contracted to 4.3 percent in the second quarter from 4.7 percent in the same period last year.