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

Top 3 Takeaways from Microsoft Ignite

By: Special Guest    10/2/2017

Microsoft Ignite wrapped up last week in Orlando. At the company's big conference dedicated to IT professionals and developers, 25,000 business custom…

Read More

Millennials Want Smart Home Tech More Than Anyone

By: Larry Alton    10/2/2017

Millennials are known for having very specific interests. They also hold a significant level of buying power in certain markets, particularly technolo…

Read More

SpaceX Names Satellite Broadband Service, Works FCC Connect America

By: Doug Mohney    9/29/2017

"Starlink" is the potential title for SpaceX's massive satellite network to deliver high-speed Internet access, reports Florida Today. The company has…

Read More

New Apple iPhone X as Much Hype as Innovation

By: Doug Mohney    9/28/2017

Apple is counting on it with the iPhone X -- the "X" symbolizing the 10th anniversary of the iPhone. Fans of the company are falling all over themselv…

Read More

Alexa and the PBX, Coming Soon

By: Doug Mohney    9/28/2017

This week, Amazon unloaded a ton of Alexa-enabled Echo gizmos, including the Echo Connect. Shipping on December 13, 2017 (just before the holiday seas…

Read More