Publishing/Writing: Insights, News, Intrigue

07/27/2012

Amazon: Exploding Revenue, Tiny Profit


Exploding Revenue

Amazon’s second quarter numbers reflected $12.8 billion in sales — but a chump-change net income of $7 million (now,I wouldn’t mind a profit of $7 million, but, against sales of almost 2000 times that amount I would be in the dumps 😦

Of course, for those that didn’t know (and I was one), these numbers are status quo for Amazon.

The reason ? Amazon is re-investing revenues in its future expansion plans. That’s a lot of do-re-mi for expansion, no ?

David Streitfeld, New York Times, has some interesting insights and forecasts:

Amazon Delivers on Revenue but Not on Profit

Leaping revenue, little profit.

That is the long-established Amazon story, and those who expected to hear it again Thursday were not disappointed.

The company reported sales of $12.8 billion, up 29 percent, in the second quarter while it eked out net income of $7 million, or a penny a share.

Those results essentially matched expectations. Analysts had estimated the Seattle-based retailer would earn 2 cents a share, down from 41 cents a share in the second quarter of 2011.

In what is becoming a routine warning, Amazon said that profit in the current quarter would remain elusive. Revenue might grow as much as 31 percent, the company said, but it was expecting a loss. Losses at Amazon were routine in its early years but in recent years it has made a profit, albeit a small one.

This would be devastating news from some Internet companies. But Amazon bulls were unfazed, saying the retailer was investing, as always, in the future.

“If they keep this up, there’s a good possibility that you’re looking at shopping malls going the way of the record store and the bookstore and the video rental store,” said Jason Moser, who covers Amazon for the Motley Fool investment site.

Amazon shares Thursday were up $3 to $220 during regular trading. The stock is trading only about 10 percent below its record high, with a stratospheric price-to-earnings ratio of about 170. In after-hours trading, shares continued rising.

Since its founding in 1994, Amazon has been focused on broadening its product and customer bases, not pumping up its profit margins. And the growth has been tremendous — it is now one of the country’s largest retailers. Even in North America, its most established market, it has been growing consistently more than twice as fast as the e-commerce market as a whole, a Forrester Research report released Thursday noted.

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