June 22, 2017

Amazon Reports Small Loss as It Focuses on Investments

But with revenue up 22 percent, Amazon showed that it could still deliver the sales growth demanded by investors, who have lifted the company’s stock 21 percent this year. So far, those demands do not include an insistence on big profits.

Until it does, Amazon seems content to pour money into initiatives aimed at gobbling up an increasing share of spending by consumers.

For the quarter that ended June 30, Amazon said it had a net loss of $7 million, or 2 cents a share, compared with net income of $7 million, or a penny a share, in the same period a year earlier. Amazon’s revenue was $15.7 billion, up from $12.83 billion the year before.

The results were slightly below the estimates of analysts surveyed by Thomson Reuters, who expected Amazon to report earnings of 5 cents a share and revenue of $15.73 billion.

The miss did not seem to trouble investors too much. The company’s stock dropped less than 2 percent in after-hours trading after the release of its earnings report.

A good illustration of Amazon’s long-term bets is online video. The company is spending hundreds of millions of dollars on licensing rights to build a large library of video that its customers can watch through their Kindle tablets and other devices. These agreements are critical as movies, music and other media — which account for 28 percent of Amazon’s total sales — shift from physical to digital form.

The company recently cut its biggest such deal ever, with a multiyear agreement to license television shows from Viacom, including children’s shows like “Dora the Explorer” and “SpongeBob SquarePants.”

As a result, Amazon spent almost 47 percent more on technology and content in the quarter, for a total of $1.59 billion — roughly 10 percent of its total revenue. Included in that spending is the company’s investment in Amazon Web Services, a lucrative business through which Amazon rents capacity in its data centers to independent companies.

“We’re investing for the large opportunities we have in front of us,” Tom Szkutak, the company’s chief financial officer, said in a conference call.

While Amazon is feared as a seller of physical goods, it faces several formidable rivals in the digital content business, including Netflix, Apple, Hulu, Microsoft and Google.

Still, Amazon is also spending aggressively on the warehouses it needs to deliver physical goods, building them in locations that have been inching ever closer to big cities with the goal of offering next-day, or even same-day, deliveries to shoppers. This year, Amazon began selling groceries in the Los Angeles area, using its own trucks to shuttle fruit, meat and boxes of cereal from a new warehouse in the city to customers’ doorsteps.

The effort is expensive and risky, though Amazon would not say whether or how much money it was losing on it. The grocery business has killed Internet retailers before — Webvan was the most notable casualty — so Amazon chose not to expand the service beyond a test in Seattle until recently.

“The challenge we’ve had over the past several years is how to make it economically viable,” Mr. Szkutak said.

All the spending on warehouses and other projects has led to a surge in hiring at the company. Its head count swelled to 97,000, up more than 40 percent from 69,000 a year ago. The hiring earned the company a plum position as the backdrop for a speech on middle-class jobs that President Obama is expected to deliver on Tuesday at an Amazon warehouse in Chattanooga, Tenn.

A big part of Amazon’s allure for investors remains its pre-eminent position in e-commerce, which is expected to rise 14.8 percent to $248 billion in American sales this year, according to eMarketer. That is far better growth than the single-digit growth expected for retail sales over all in the United States this year.

Kerry Rice, an analyst at Needham Company, said investors believed that Amazon could keep stealing market share from Walmart and other physical retailers, and that eventually its profits would improve.

“On some level, I think some people are buying the stock because they’re hoping for that investment cycle to begin to reduce,” Mr. Rice said. “If they pull back on spending, you’re going to see that operating margin tick up.”

Mr. Rice added: “I don’t think that’s going to happen for a long time.”

Article source: http://www.nytimes.com/2013/07/26/technology/amazon-reports-a-small-loss.html?partner=rss&emc=rss

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