April 27, 2011

Amazon Profits Slip, But Revenue Rises

The Internet retail giant Amazon.com reported a slip in its quarterly profits, even though revenue continues to climb to $9.86 billion.

Net income for the company in the first quarter, ending on March 31, was $201 million, or 44 cents a share, a decline from its income the same time last quarter at $229 million, or 66 cents a share, reports AFP.

The company's stock shares were down 1.2 percent after the report showed a 32.8 percent decline in first-quarter profits, trading at a slight decrease of $180.54.

"The concern that people had, that they were going to spend more than the [Wall] Street was expecting, happened," Ken Sena, an analyst at Evercore Partners, told Reuters reporter Phil Wahba.

"But when you look at the kind of growth acceleration they are showing on the top line and surpassing pretty much all Street expectations, I think that clearly shows what they are doing makes sense."

Amazon's operating margin came to 3.3 percent, which is the middle of the range it had forecasted.

Regardless, this was a significant drop from the 5.5 percent margin in the same quarter last year.

"It's not a revenue problem, it's a profit problem," BGC Partners analyst Colin Gillis told Wahba. "But at the end of the day, you've got to remember that these guys are a discount retailer."

Amazon expects its operating profit in the current quarter of $95 million to $245 million, after costs of $180 million for stock-based compensation and amortization of assets.

The second quarter of last year saw an operating profit of $207 million.

However, the Seattle-based firm gave a confident revenue forecast, suggesting that its aggressive expansion into new businesses is paying off.  This helped to ease concerns about its slimmed-down profit margin.

Amazon.com chief executive Jeff Bezos' main focus is on the innovations the company has been investing in for the future.

"We love inventing on behalf of customers and have never been more excited about the long-term opportunities," Bezos said in a statement.

Some products that were introduced by Amazon in the past 90 days include Kindle with Special Offers, Audible audio books on Kindle, Appstore for Android, Amazon for Windows Phone 7, Cloud Drive, Cloud Player, and Prime Instant Video, Bezos notes.

Chief Financial Officer Tom Szkutak told analysts on a conference call that Amazon has to spend money to develop the technology infrastructure and distribution centers and support its growth, reports Reuters.

"We're just seeing tremendous growth, and because of that we're having to invest in a lot of capacity," Szkutak says.

The increased investment into its cloud computing services and other costs of competing in a very highly promotional retail environment has Amazon reporting an 18.2% dip in its operating profit for the quarter, reports Reuters.

Nevertheless, revenues have nearly doubled between 2008 and 2010.

Data firm eMarketer estimated that U.S. retail e-commerce sales rose 13 percent in the quarter compared with last year.

The increase in Amazon's sales was led by a 45 percent rise in North America. Excluding the effect of currency exchange, the company's growth elsewhere was 27 percent, reports Reuters.

Szkutak adds that Amazon's international sales also took a hit from the deadly Japan earthquake and tsunami on March 11, which affected its profit.

Amazon forecast current-quarter revenue of $8.85 billion to $9.65 billion. This is above Wall Street expectations of $8.7 billion, according to Thomson Reuters I/B/E/S.

Analysts estimated Amazon's revenue to be $9.57 billion, but the company exceeded this average with revenue of $9.857 billion, which is 38.2% above a year earlier.


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