Amazon announced a worse than expected loss for the second quarter of 2014 despite an increase in sales, as investments in a range of new products and services took their toll on profits.
The world’s largest online retailer posted a loss of $126 million, or $0.27 per share, which was wider than the $0.15 per share loss analysts had expected, according to data compiled by Bloomberg.
Revenues increased by a healthy 23% during the three-month period ending June 30, reaching a total of $19.34 billion, but this was matched by an identical increase in operating expenses, which now stand at $19.36 billion compared to $15.62 billion from the previous year.
During a conference call with analysts, Amazon CFO Tom Szkutak pointed to increased investment in its cloud computing service, known as AWS Amazon, as well as a recent price drop for AWS customers as reasons for higher costs in the quarter.
Other factors included a slowdown in international sales, which Szkutak blamed on Japan’s 3% tax hike on consumer goods which came into effect in April this year, as well as $100 million investment in original media content for Amazon Prime customers.
Traders punished the stock after the earnings announcement and Amazon shares fell by 11% in after hours trading on Thursday. Since the start of 2014 Amazon’s stock price has fallen by 10% as investors become increasingly frustrated by the firm’s perceived disregard for the bottom line.
The latest results were not a huge surprise for long-time Amazon watchers, few other companies are able to have multi-billion dollar revenues but still not make any profit. The reason is CEO Jeff Bezo’s strategy of consistently plowing revenue back into hardware and service development in order to build customer loyalty.
Over the last twelve months it has launched a set-top box for home video streaming, a wand-like device for grocery shopping from home, its own smartphone dubbed Amazon Fire, as well as music streaming service, a document-sharing service for businesses and a new e-book subscription platform.
While all these products have been great for consumers, Amazon’s expansion has been expensive for shareholders and the company began posting quarterly losses since 2012 when it posted a $274 million loss in the year’s third quarter.
By comparison the Chinese e-retailing giant Alibaba Group Holding Ltd, which is planning an upcoming initial public offering, revelled in a recent prospectus that its profit was $2.8 billion for the nine months ending December 31 with revenue of $6.5 billion. Amazon on the other hand earned $274 million for all of 2013 on sales of $74.5 billion.
The benefits of Amazon’s growth in new businesses will make it back to investors according to Szkutak. “We have a tremendous amount of opportunity…we’ll obviously be looking to get great returns on invested capital,” he said.
Whether investors are willing to wait until these investments pay off is another matter, particularly if Bezo keeps picking capital-intensive and highly competitive sectors such as smartphones to move into.