Amazon's Net Income Drops as Spending Rises

By Ashok Bindra October 26, 2011

Increased spending on new products like Kindle Fire is cutting Amazon’s profit margin. The world’s largest Internet retailer reported a plunge in third-quarter profit after it ramped up spending on new products such as the Kindle Fire tablet. The shares tumbled 19 percent in late trading on Tuesday.

The Internet retailer’s financial report indicates that the company’s net income fell 73 percent to $63 million, or 14 cents a share, from $231 million, or 51 cents in 2010. According to Bloomberg, Amazon missed the 24 cents predicted by analysts. Amazon also said it may post an operating loss this quarter, as per Bloomberg’s report.

As per this report, Amazon is sacrificing profit margins in search of sales volume and market-share gains. Also, it is selling its Kindle Fire tablet for as low as $199, almost less than half the price of Apple’s cheapest iPad. Amazon’s CEO Jeff Bezos is counting on revenue from digital music, books and movies to make up for selling the product at a loss, wrote Bloomberg reporter Danielle Kucera.

The report quoted Robert W. Baird & Co analyst Colin Sebastian, as saying, “They missed investors’ expectations… The companies’ growth plans aren’t doing enough to spur profit, rather than just sales,” he added. “If they don’t show a corresponding increase in earnings, investors start to scratch their heads,” continued Sebastian.

The company said that fourth-quarter operating results may range from a loss of $200 million to a profit of $250 million. However, as per Bloomberg’s report, analysts were projecting a gain of $512.7 million. While Amazon is expecting sales to be around $16.5 billion to $18.7 billion.

Analysts have indicated that the internet retailer is also losing money due to shipping expenses. Under a prime program, Amazon has been offering unlimited two-day shipping for $79 a year. Consequently, shipping fees generated were only $360 million in the third quarter, substantially lower than the actual $918 million in shipping expenses.

Ashok Bindra is a veteran writer and editor with more than 25 years of editorial experience covering RF/wireless technologies, semiconductors and power electronics. To read more of his articles, please visit his columnist page.

Edited by Rich Steeves

TechZone360 Contributor

Related Articles

Jeff Bezos, Elon Musk Square Off on Rocket Firsts

By: Doug Mohney    11/25/2015

On Monday, November 23, Blue Origin successfully flew the first fully reusable rocket into space, giving the company first bragging rights. Founder Je…

Read More

Autonomous Car Technology Takes New Leap Forward With Ford, Uber

By: Larry Alton    11/24/2015

The age of the self-driving car is nearly upon us, or at least that's what major technology and automotive companies are hoping. There have been major…

Read More

Unusual but Fun Tech Ideas for 2015

By: Rob Enderle    11/24/2015

Well, it's the week of the big sales, and many of us are planning to buy that special someone a special something. I figured I'd join my peers and poi…

Read More

Locus Telecommunications is Challenging the FCC's Authority, Claiming Due Process Violations

By: Special Guest    11/24/2015

One of a handful of prepaid calling card companies slapped with a $5 million fine by the Federal Communications Commission (FCC or Commission) for its…

Read More

Kaspersky: Three Out of Four Users Have Trouble Spotting Big Threats

By: Steve Anderson    11/23/2015

We all know that spending on cybersecurity has been on the rise lately, as everyone from major corporations to military groups ramp up their cyberdefe…

Read More