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Amazon Inc's income drops sharply

Amazon.com Inc's second-quarter income plummeted over the same period a year ago as it cut prices, lost a lawsuit and invested in new technology, the Internet retailer reported on Tuesday.

Amazon net income for the quarter ending June 30 was US$22 million, or US$0.05 a share, as compared with US$52 million, or US$0.12 per share, in its second quarter last year, according to the company.

The results disappointed Wall Street analysts who had anticipated earnings of US$0.07 per share.

In after-hours trading Amazon stock was down more than 14 percent from the previous day at US$29.46 a share. The report was released after the market closed.

Amazon stressed that lower prices and free shipping spurred sales and that Web site memberships doubled this year.

"Our strategy for our business is a straight-forward one," chief executive Jeff Bezos told analysts. "Putting energy into building fly-wheels today that will continue to pay off ten years from now."

Sales grew 22 percent in the second quarter, to US$2.14 billion, compared with US$1.75 billion in the same period last year, according to the Seattle, Washington State, company.

Operating income plunged 55 percent to US$47 million in the second quarter, compared with US$104 million in second quarter of last year, Amazon reported, attributing the decline to technology and content investment, lower prices, free shipping, the Amazon Prime program and the US$20 million cost of a contract termination.

Amazon lost a hard-fought lawsuit to Toys "R" Us, which was allowed to end Amazon's exclusive right to sell its products on the Internet, and allowing Toys to launch its own online store.

Amazon put money into diversifying inventories having merchandise available to fill orders quickly, Bezos said, while analysts worried about slim profit margins in the grocery sector Amazon has targeted.

"We are selecting items in that store that we think will be profitable," Bezos said, indicating a focus on bulk items. "We don't just carry a few flavors of Jello; we offer all 80."

Amazon Prime charges US$79 for a year of two-day order shipping at no extra charge.

"Our investments in technology position us to innovate in seller platforms, web services and digital. We're looking forward to the coming decrease in our year-over-year growth rates in technology spending in the second half of 2006," he said.
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