Business

Amazon Shakes Off Small Q2 Loss

A 22 percent revenue increase in its second quarter wasn’t enough to keep Amazon from reporting an unexpected US$7 million loss on Thursday, which it attributed partially to a weakened European economy.

The company’s stock, which has been up more than 20 percent for the year overall, tumbled more than 2 percent in after-hours trading. The stock price dipped below the $300 mark it hit for the first time earlier this month, but recovered going into Friday afternoon, inching past $307 per share.

Amazon focused more on its gains for the quarter than its loss in a conference call following the report. The company highlighted its $15.7 billion in revenue in the quarter, up from $12.83 billion a year ago. Its $7 million net loss — 2 cents per share — was down from the $7 million profit it reported a year ago.

The company forecast revenue of $14.45 billion to $17.5 billion for its next quarter, and predicted a loss of $440 million to $65 million.

Spending Money to Make Money

Amazon’s loss is due in part to its high Q2 operating expenses, said Colin Gillis, an analyst at BGC Partners. Amazon spent 23 percent more than it did in the year-ago period as it continued to expand its digital content and e-commerce business.

With Amazon, those operating costs are important numbers to keep an eye on — and ones that aren’t going to disappear anytime soon, said Gillis.

“They’re obviously trying to invest in multiple areas,” he told the E-Commerce Times. “The issue of whether or not they can turn a profit remains to be seen. They pointed to some of their costs this quarter, but there are always going to be shipping costs, content costs, the costs of a device maker making new Kindles. Those are never going to go away.”

As for now, though, investors seem to have confidence that Amazon will continue to be a dominant force in the market going forward, said Doug Stephens, founder of Retail Prophet and author of Retail Revival.

“Amazon is an oddity,” he told the E-Commerce Times. “It’s one of the only companies I can think of that seems to have permission from shareholders to not make money. It’s hard to argue with their ability to go into unknown markets and simply dominate them. Amazon is in this continual state of preparation for an incredibly profitable future.”

Counting on Investments

Going forward, Amazon is counting on a future rich from profits — not just from its own products, but also from gains as online shopping wipes out brick-and-mortar retailers, said Stephens.

“The Kindle is key to their success in almost every vertical,” he said. “Also, right now in many markets, they’re simply playing a game of attrition, waiting for incumbents like Best Buy and Barnes & Noble to die off. They’re slipping into delivered groceries, which I think is a move that will pay dividends over the next 10 to 20 years when baby boomers stop driving.”

Amazon’s greatest opportunities for profit might be in the future, but some tough challenges lie ahead too, said Gillis.

Although Amazon is planning a big push to expand its digital content platform into international markets, some of its greatest competition in the coming years could come from those regions, he noted — for instance, from China-based Alibaba.

Still, in the minds of investors, the opportunities for future profits trump worries over competition, Stephens added.

“We can’t read too much into a single quarter of performance with Amazon,” he pointed out. “They just have too many strategic moves happening to isolate performance in a short period.”

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