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

Machine Learning & EHSQ: An Overview

By: Special Guest    7/21/2017

No matter what industry you work in, you've likely been hearing about the importance, and prevalence, of machine learning and analytics. But what do t…

Read More

10 Announcements From WWDC That Impact Mobile-First Businesses

By: Special Guest    7/20/2017

With several announcements made during Apple's annual WorldWide Developers Conference (WWDC), here are the top 10 that mobile-first businesses should …

Read More

How Artificial Intelligence is Changing the Travel Experience

By: Special Guest    7/20/2017

In tech circles and beyond, AI is the mot du jour lately, often thrown around in speculative conversations as the magical key that will unlock previou…

Read More

Attacking Democracy: Should DDoS Be Considered a Legitimate Form of Protest?

By: Special Guest    7/19/2017

It used to be that news about DDoS attacks was largely limited to tech websites and other specialized information sources, where the focus was on atta…

Read More

How AI is Changing the Way We Invest

By: Special Guest    7/14/2017

According to Investopedia, algorithmic trading already comprises 70 percent of daily trading. As trading becomes more automated, the need for human an…

Read More