* Sees possible Q4 operating loss
* Q4 revenue estimate disappoints
* Company spending to support growth - CFO
* Increases Kindle Fire tablet output on strong demand
* Amazon shares slump 12 pct after hours
(Adds operating profit expectations, analysts' quotes)
By Alistair Barr
Oct 25 Amazon.com Inc shocked investors with a
far weaker-than-expected outlook for the crucial holiday season
quarter as it spent heavily on its new Kindle Fire tablet
The stock tumbled 12 percent Tuesday in extended trading as
the news raised concern that Amazon was losing some of the
revenue momentum that had helped investors overlook its
razor-thin profit margins.
Amazon forecast fourth-quarter revenue of $16.34 billion to
$18.65 billion, compared with analysts' average estimate of
$18.15 billion as compiled by Thomson Reuters I/B/E/S.
Amazon's forecast would mean 27 to 44 percent growth from a
year earlier. In the third quarter, sales grew 44 percent, less
than the 51 percent gain in the second quarter.
The company also said it could report a $200 million
operating loss to a $250 million operating profit in the
holiday quarter as it spends on the Fire and other
That forecast, which includes $200 million for stock-based
compensation and intangible assets, was "materially" below Wall
Street expectations, according to UBS analysts Brian Pitz and
Brian Fitzgerald. They were looking for $374 million in
operating profit in the fourth quarter.
"We're not seeing the investment pay off yet, but I think
investors are impatient as to how long will it take before you
will start to see this pay off," Evercore Partners analyst Ken
Sena said. "When are we going to start to see some signs?"
Amazon's fourth-quarter forecast implies a profit margin of
"effectively zero," Youssef Squali, an analyst at Jefferies &
Co, noted during a conference call with the company.
KINDLE FIRE COST
Amazon said on Tuesday its third-quarter net income was $63
million, or 14 cents a share, versus $231 million, or 51 cents
a share, a year earlier. Revenue was $10.88 billion, up 44
percent from the third quarter of 2010, it added.
Analysts had expected earnings per share of 24 cents on
revenue of $10.95 billion, according to Thomson Reuters
"Lower profit margins would be acceptable, but for the
lower-than-expected revenue growth numbers," said Fred Moran,
an analyst at The Benchmark Co.
Moran had expected third-quarter revenue growth of as much
as 50 percent.
The company unveiled its new Kindle Fire tablet in late
September and many analysts think it is being sold close to the
cost of making it, or even at a loss.
"The revenue is a little light, but margin is where the
biggest variance is from Wall Street's expectations," said Scot
Wingo, chief executive of ChannelAdvisor, a software company
that helps merchants increase online sales. "This is largely
due to Amazon's investment in the Kindle Fire."
Amazon is also investing in video content and other
publishing deals to support the device, while spending on
datacenters for its cloud computing business and fulfillment
for its online retail operations.
Wall Street has accepted such spending because Amazon has
proved in the past that it can generate higher growth from such
investments. However, analysts have been on edge about Amazon's
third-quarter results and fourth-quarter forecasts because of
the recent increase in expenditures.
SPENDING TO SUPPORT GROWTH
Amazon Chief Financial Officer Tom Szkutak said on a
conference call after the results that the company has had to
add fulfillment capacity to handle the growth of its main
online retail business.
The company is planning to build 17 new fulfillment centers
this year, two more than its previous plan, the CFO noted.
Szkutak also said Amazon is increasing production of the
Kindle Fire by "a few million units," citing strong demand.
Amazon shares fell to $199.52 in extended trading, after
closing 4.4 percent lower at $227.15 on Nasdaq.
(Reporting by Alistair Barr in San Francisco; additional
reporting by Martinne Geller in New York and Brad Dorfman in
Chicago; Editing by Richard Chang)