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

SHARE THIS ARTICLE
Related Articles

Why People Don't Update Their Computers

By: Special Guest    7/13/2018

When the WannaCry ransomware attacked companies all over the world in 2017, experts soon realized it was meant to be stopped by regular updating. Even…

Read More

More Intelligence About The New Intelligence

By: Rich Tehrani    7/9/2018

TMC recently announced the launch of three new artificial intelligence events under the banner of The New Intelligence. I recently spoke with TMC's Ex…

Read More

Technology, Innovation, and Compliance: How Businesses Approach the Digital Age

By: Special Guest    6/29/2018

Organizations must align internally to achieve effective innovation. Companies should consider creating cross-functional teams or, at a minimum, incre…

Read More

Contribute Your Brain Power to The New Intelligence

By: Paula Bernier    6/28/2018

The three events that are part of The New Intelligence are all about how businesses and service providers, and their customers, can benefit from artif…

Read More

TMC Launches The New Intelligence - an Unparalleled AI and Machine Learning Conference & Expo in Florida

By: TMCnet News    6/28/2018

TMC announced the launch of The New Intelligence conference and expo - The Event Powering the AI Revolution. This exciting new event will take place o…

Read More