Amazon Pays The Price For Heavy Investments

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The e-commerce giant makes a bigger than expected loss as it gears up to take on Apple and Google

Amazon is paying the price as it invests heavily to compete against the likes of Apple, Microsoft, Google and others.

The e-commerce giant and cloud provider posted a larger than expected net loss for its second quarter, but sales indicated that the company is still enjoying healthy growth.

Heavy Investments

For the period ending 30 June, Amazon posted a net loss $126m (£74m), or $0.27 (£0.16) per diluted share, compared with net loss of $7m (£4.1m), or $0.02 (£0.01) per diluted share, in the same year-ago quarter.

Analysts had only been expecting a net loss of $0.15 (£0.09) per diluted share, which prompted shares in the company to fall 10 percent in late trading on Thursday.

But there was better news on the sales side as revenues increased 23 percent to $19.3bn (£11.4bn) in the second quarter, compared with $15.7bn (£9.2bn) in second quarter 2013.

“We continue working hard on making the Amazon customer experience better and better,” said Jeff Bezos, founder and CEO of Amazon.com. “We’ve recently introduced Sunday delivery coverage to 25 percent of the US population, launched European cross-border Two-Day Delivery for Prime, launched Prime Music with over one million songs, created three original kids TV series, added world-class parental controls to Fire TV with FreeTime, and launched Kindle Unlimited, an eBook subscription service.”

“For our AWS customers we launched Amazon Zocalo, T2 instances, an SSD-backed EBS volume, Amazon Cognito, Amazon Mobile Analytics, and the AWS Mobile SDK, and we substantially reduced prices,” added Bezos. “And today customers all over the US will begin receiving their new Fire phones – including Firefly, Dynamic Perspective, and one full year of Prime – we can’t wait to get them in customers’ hands.”

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In June Amazon finally revealed its much-trumpeted Fire Phone, a modified-Android handset heavily tied to its online sales machine, and equipped with face-tracking technology to simulate a 3D display.

However, initial reviews have been reportedly lukewarm, with concern expressed at the high price of the handset (odd considering Amazon sells its Kindle tablets almost at cost prices), and its struggle to attract punters away from Apple and Samsung with “must have” killer features.

Despite this Amazon continues to invest heavily in the future, hence the net loss this quarter. Earlier this month, Amazon hired Babak Parviz, the man credited with starting Google Glass. That move could potential signal Amazon’s wearable computing intentions.

Indeed, it has already launched a dedicated store for wearable technology that already features more than 100 devices.

Looking forward though, Amazon warned investors that profits will remain elusive as it gears up to tackle its more established rivals. The company has forecast an operating loss of between $810m (£477m) and $410m (£242m) for the third quarter ending in September, a sharp increase from a loss of $25m a year earlier.

But it did offer a crumb of comfort for inventors when it forecast that net sales would be between $19.7bn (£11.6bn) and $21.5bn (£12.6bn), or to grow between 15 percent and 26 percent compared with third quarter 2013.

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Author: Tom Jowitt
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