Sat, Jul 26, 2014 - Page 15 News List

Amazon predicts high losses for Q2 as heavy investing eats into bottom line

Reuters, SAN FRANCISCO Inc posted a much larger than expected loss in the second quarter as it continues its rapid pace of investment in new businesses such as digital content and consumer electronics.

Amazon’s stock price has dropped 10 percent so far this year, with investors leery of betting on its long-term growth at the expense of little to no profit.

On Thursday, the shares fell another 10 percent in late trade, after the largest US online retailer posted a loss of US$0.27 per share, nearly double Wall Street’s average estimate for a loss of US$0.15.

The company also forecast an operating loss of between US$410 million and US$810 million for the third quarter ending in September, a sharp increase from a loss of US$25 million a year earlier.

Amazon is investing heavily in new businesses and hardware products, as it prepares to take on major tech rivals from Apple Inc and Google Inc to Netflix.

Chief financial officer Tom Szkutak said Amazon had a “tremendous amount of opportunities” and its investments were “certainly impacting short-term results.”

The company is spending more than US$100 million on original video content in the third quarter, a substantial increase compared with last year and the second quarter, Szkutak said.

“We’re going to continue to invest on behalf of customers with the understanding that long-term has to come,” he said during a call with reporters. “We’ll obviously be looking to get great returns on investor capital and high amounts of cash flow.

New products and businesses unveiled this year include a subscription book service, new digital content for its Prime online video service, a TV streaming box and the upcoming “Fire” smartphone. Amazon is also spending billions of dollars expanding its network of fulfillment centers across the world.

Amazon reported a net loss of US$126 million, or US$0.27 per share in the second quarter, compared with a loss of US$7 million, or US$0.02 a share a year earlier. Total operating expenses rose 24 percent to US$19.36 billion.

Revenue jumped 23 percent to US$19.34 billion, in line with Wall Street’s average prediction of US$19.3 billion, according to Thomson Reuters I/B/E/S.

Amazon’s steep price cuts for its cloud computing service made earlier this year limited growth in its “other” revenue category, which includes its popular Amazon Web Services division, Szkutak said.

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