Amazon profit drops 96%

[Brave7]

Profits sank even as sales jumped as Amazon continues to invest in its long-term future.

Despite a healthy bump in sales across multiple businesses, Amazon's profits took a hit in the second quarter.

The company reported a 29% sales increase to $12.83 billion, up from $9.9 billion the same time last year. That was off from Wall Street's estimates, which had predicted revenues of $12.9 billion. Profits dropped 96% to $7 million, or 1 cent per share, compared with $191 million a year ago. Amazon shares were up 1% in after hours trading.

The drop in profits wasn't much of a surprise. Although Amazon (AMZN) saw record sales in 2011, its profits over the last few quarters have been significantly weighed down by the company's ambitious spending. CEO Jeff Bezos has publicly said in the past that the company is spending heavily now on expansion in multiple businesses to achieve long-term gains.

MORE: Amazon will make its own TV shows

One business Amazon has been investing heavily in the Kindle. Last fall saw the high-profile release of the Kindle Fire tablet, a device many analysts believe Amazon initially sold at a loss. The company has also incurred expenses related to building more distribution centers. So far this year, the company has opened eight new warehouses, with plans of opening another 10 this year.

Amazon also "may be facing further margin pressure due to the success of its Amazon Prime offering," wrote Benchmark Capital analyst Daniel Kurnos in a research note. In an earnings release, Bezos made special note of Amazon Prime, the $79-a-year loyalty reward program that has grown beyond offering two-day on products to include e-book borrowing and streaming access to some TV shows and movies. Currently, the company offers 18,000 movies and TV episodes, and 170,000 lendable books. "What hasn't changed since we launched Prime? The price," said Bezos. "It's still $79."

Amazon Chief Financial Officer Tom Szkutak said the company's operating expenses included adding capacity to Amazon Web Services and overall retail, the latter of which may include heavy investments in the expansion of same-day delivery of products, as originally reported by The Financial Times. ("We don't see a way to see do that [same day nationally] on a broad scale economically," Szkutak admitted.)

Read more http://tech.fortune.cnn.com/2012/07/26/amazon-4/

Are you feeling the need to shrink your profit in this economy?

[Kaabi]

That is mindblowing to think that profits have actually fallen 96%, but at least they are not in the red, which is what some companies sink into when going through such expansion efforts. I still have great faith in Amazon for the future!

[justins]

Such a huge company, i am surprised to know the truth. it very big fall and not so easy to recover because of current competition in online shopping sites. i was affiliate with them and they paid me good percentage for every sale so i feel pity for amazon.

[TechUpdates]

Hmm.. Thanks for the update! Amazon needs to change their core business model to something more innovative in nature!

[ZunuZunu]

I haven't read it. But I don't believe it. It's not possible in real; but I know it is possible to show on paper

[snakeair]

Originally Posted by ZunuZunu

I haven't read it. But I don't believe it. It's not possible in real; but I know it is possible to show on paper

If you read the blog post, you'd understand where that number is coming from.

[billzo]

This "drop" in profit isn't a negative thing. The company is investing for the future, and its spending is temporary. If they stop the investment spending, all else equal, the profits would go right back up.

If profits dropped because revenue dropped, that would be a big thing. That's not the case here. Generally speaking regarding investing, the past is irrelevant, the present is irrelevant, the only thing that matters is the future.

This is a temporary thing. Possibly good for future profits.

[dowjoetod]

Amazon's strategy has always been conquering market share, not chasing profits... This great company is one of my favourites. It was founded back in 1994, but the first profits were registered as late as Q4, 2001, after 6 years of exitence. There many interesting facts about this company, here is a brief history of Amazon's business: http://bigbusinessideas.org/www-amaz...at-enterprise/

[snakeair]

Originally Posted by Surajrajwani

It can be happen since there are so many business experiencing downfall due to the down break of euro-zone and US markets.

Any feedback on the blog post?

[atyq]

It's not their turnover, but their profit.
So it isn't bad, it means that they invest.

[Webstudio Pros]

This surprises me, really. Today's world is even more interactive in buying and selling things online.. .and if Amazon took a dive earlier, I am confident that they'll be doing well in the next few months....Christmas is coming to town, ain't it?

[WebDevNow]

Wow, Great Surprise for me as well,

[JakeMoore]

Actually this is the perfect time to reinvest. Your dollar goes a lot further now than it did a few years ago. Really good time to borrow at extremely low interest rates since inflation is inevitable.

[greentek]

That's Really surprise for me. that is amassing.

[9am]

They took a big write-down on their purchase of Kiva Systems this quarter which hit their historically small profit margin. Amazon is taking big bets for the future so only generate small profits and invest the rest.

Sales are up 29% in the same article. When that stops increasing the profits had better look a lot better...

[httpEasy]

It's a good strategy when the going gets tough. Better than downsizing on staff & services like some dumb number crunchers.

[chad1988]

Originally Posted by Webstudio Pros

This surprises me, really. Today's world is even more interactive in buying and selling things online.. .and if Amazon took a dive earlier, I am confident that they'll be doing well in the next few months....Christmas is coming to town, ain't it?

That is surprising. I agree. Like you said, sales and profits should pick up around Christmas. Gee, I can't believe were nearing Christmas again.

Chad

[Dy.namik]

Thats a big drop! Especially for a company like Amazon, but I'm sure they will comeback in the upcoming months.

[jvwp]

I don't think there is anything to worry about with Amazon.com. When a company is opening up more warehouses and "growing", that simply means they're re-investing their profits. I would get concerned if things were getting closed down or "downsized" with the same kind of losses being reported.

[zylun]

I've read yesterday I think that was an article or a blog post that Alibaba dominate now in de ranking amazon, ebay.