Amazon profit misses as costs surge

Amazon.com Inc's quarterly profit fell far short of Wall Street estimates, hurt by a 40 per cent jump in expenses and by price cuts on its Kindle electronic reader, sending its shares down 14 per cent.

The largest global online retailer spent more than investors had expected on everything from new staff to fulfillment centers, as it takes a bigger bite out of the traditional retail industry led by the likes of Wal-Mart Stores.



The hugely successful introduction of Apple Inc's iPad also pressured Amazon's lead in e-readers. Amazon does not disclose how many Kindles it has sold, but said on Thursday the growth rate on their sales tripled after it cut prices on them.



Apple said this week it had sold 3.27 million iPads and was pricing the device aggressively as it tries to define the nascent tablet market.



"The main that that has happened - because of the competition against the iPad - they've had to slash the price on the Kindle, causing the company to take an upfront hit on profits and hindering margins," said Frederick Moran, analyst at Benchmark Co.



Moran added that the company's forecast for the third quarter looked low, though Amazon has a reputation for being conservative in its view of future results.



Amazon had posted blow-out results in its fourth and first quarters, but investors feared the momentum would stall this spring.



Total operating expenses rose 40 per cent to $6.3 billion (£4.09 billion), with major increases in its cost of sales, marketing and technology and content investments.



"It kind of brings back fears that there would be overspending at Amazon on different operating projects," said BWS Financial's Hamed Khorsand.

Amazon's second-quarter net income rose 45 per cent to $207 million (£134 million), or 45 cents per share, from $142 million (£92 million), or 32 cents per share, a year earlier.



Analysts, on average, had been expecting earnings of 54 cents per share, according to Thomson Reuters.



Revenue rose 41 per cent to $6.57 billion (£4.26 billion), just above the $6.54 billion expected by Wall Street. Revenue in North America rose 46 per cent, versus 35 per cent internationally.



Amazon forecast operating income in its third quarter to range between $210 million (£136 million) and $310 million (£201 million)- representing a potential drop of 16 per cent to a gain of 24 per cent - on sales of $6.9 billion (£4.5 billion) to $7.63 billion (£4.95 billion) .



Amazon executives defended the jump in spending as the company increasingly goes up against traditional retail giants like Wal-Mart.



"Our operating expenses are increasing year over year related to capacity. We've been growing very, very fast," said Chief Financial Officer Tom Szkutak, citing 13 new fulfillment centres the company is adding and additional support for its retail and web services units.



Szkutak also said the Kindle's sales growth rate had tripled since the company lowered the price of the device to $189 (£122) for its most basic model.



"We are seeing very, very strong device growth and we are seeing very, very strong content growth," said Szkutak. Amazon said that for every 100 hardcover books sold on Amazon.com, the company sells 180 e-books.



The Kindle also faces competition from Barnes & Noble, which recently cut prices on its own Nook e-reader.



Amazon Chief Executive Jeff Bezos addressed the extra competition from the iPad in a press release, saying "tablet computers could become a meaningful additional driver for our business." Analysts say that iPad owners are buying e-books from Amazon's Kindle store even though content is similarly available from Apple's own digital bookstore.

News
peopleFrankie Boyle responds to referendum result in characteristically offensive style
Sport
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
PROMOTED VIDEO
Life and Style
ebooksA superb mix of recipes serving up the freshest of local produce in a delicious range of styles
Life and Style
ebooksFrom the lifespan of a slug to the distance to the Sun: answers to 500 questions from readers
Sport
Fans hold up a scarf at West Ham vs Liverpool
footballAfter Arsenal's clear victory, focus turns to West Ham vs Liverpool
New Articles
i100... she's just started school
News
news
New Articles
i100
Life and Style
Couples have been having sex less in 2014, according to a new survey
life
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
Sport
football
New Articles
i100... despite rising prices
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Gadgets & Tech

    Graduate BI Consultant (Business Intelligence) - London

    £24000 - £30000 per annum + benefits: Ashdown Group: Graduate BI Consultant (B...

    Service Delivery Manager (Product Manager, Test and Deployment)

    £40000 - £55000 per annum: Ashdown Group: Service Delivery Manager (Product Ma...

    Technical Product Marketing Specialist - London - £70,000

    £50000 - £70000 per annum: Ashdown Group: Cloud Product and Solutions Marketin...

    Trainee Helpdesk Analyst / 1st Line Application Support Analyst

    £18000 per annum: Ashdown Group: An established and growing IT Consultancy fir...

    Day In a Page

    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam