Amazon keeps spending to grow, slashing profits

SAN FRANCISCO Tue Jan 31, 2012 6:07pm EST

Work is carried out at Amazon's new fulfilment centre after it was opened by Scotland's First Minister Alex Salmond in Dunfermline, Scotland, November 15, 2011.  REUTERS/Russell Cheyne

Work is carried out at Amazon's new fulfilment centre after it was opened by Scotland's First Minister Alex Salmond in Dunfermline, Scotland, November 15, 2011.

Credit: Reuters/Russell Cheyne

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SAN FRANCISCO (Reuters) - Amazon.com Inc warned of a possible operating loss in the first quarter following a sharp drop in fourth-quarter profit, a sign that the online retailer is continuing to spend heavily on expansion and new ventures at the expense of shorter-term profits.

Shares of the company fell more than 9 percent.

Amazon forecast first-quarter operating results ranging from a loss of $200 million to a profit of $100 million, below Wall Street expectations.

Amazon has been growing at least twice as fast as the e-commerce sector in recent years. To keep up that pace, the company is expanding into new categories and regions, spending heavily on growth and crushing profit margins.

Amazon's first-quarter forecasts suggest the company may continue this heavy investment.

"The wide range reflects the investments that we're making," Amazon Chief Financial Officer Tom Szkutak told reporters on a conference call. "We have a lot of opportunities to invest in .... You're seeing more of that in Q1."

Amazon forecast first-quarter revenue of $12 billion to $13.4 billion. Wall Street was looking for $13.4 billion, according to Thomson Reuters I/B/E/S.

Amazon shares dropped 9.5 percent to $175.84 in after-hours trading following the results.

"Amazon is not a cheap stock, so any type of disappointment, we typically see a pretty meaningful reaction by the market," James Lee, analyst at Credit Agricole, said.

Amazon shares have fallen more than 20 percent since hitting a record in October, partly on concern about how much the company is investing.

Amazon is spending in three main areas: fulfillment centers to support its online retail business; content for video streaming and other media businesses; and technology infrastructure for its cloud computing service.

One of Amazon's latest ventures is the Kindle Fire tablet computer, which some analysts estimate the company is selling at break-even or at a small loss.

On Tuesday, Amazon said sales of all types of Kindle devices, including cheaper e-readers, jumped 177 percent over the nine-week holiday period ending Dec 31, versus the same period a year earlier.

Amazon CFO Szkutak said Tuesday that he was "very encouraged" by the early spending habits of Kindle Fire owners, who are buying more digital content such as e-books, video, music and apps.

Amazon said fourth-quarter net income was $177 million, or 38 cents per share, down from $416 million, or 91 cents per share, a year earlier.

Revenue came in at $17.43 billion, up 35 percent from the fourth-quarter of 2010.

Amazon forecast first-quarter operating results ranging from a loss of $200 million to a profit of $100 million. That includes about $200 million for stock-based compensation and other expenses.

"Margins beat, but the outlook was disappointing on both top line and bottom line," said Ken Sena, an analyst at Evercore.

Amazon forecast first-quarter revenue of $12 billion to $13.4 billion. Wall Street was looking for $13.4 billion, according to Thomson Reuters I/B/E/S.

(Reporting By Alistair Barr; Editing by Richard Chang)

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Comments (2)
slopey wrote:
Looks like its time to buy amazon stock…its not like these guys are going away anytime soon

Jan 31, 2012 7:30pm EST  --  Report as abuse
CF137 wrote:
I highly doubt Amazon cares what Wall St. thinks. All they’d have to do is a stock split if they were worried about their share price.

Jan 31, 2012 7:35pm EST  --  Report as abuse
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