Why Amazon Profits are HURTING

Amazon.com (NASDAQ:AMZNcontinued the tech bleed by missing earnings expectations for the second quarter. Net income decreased a whopping 96 percent to $7 million, or a cent per share, compared with $191 million, or 41 cents per share, in the same period last year. Analysts had expected two cents per share. Revenue rose 29 percent year-over-year to $12.83 billion, a sliver short of the predicted $12.89 billion mark.

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Most of the blame of dropped earnings goes to the heavy spending the retailer has indulged in over the past few months as it tries to expand and invest in new shipping and data centers, online video content, and, most important, its Kindle Fire tablet and other devices. Operating expenses grew 31 percent, outpacing revenue growth. Operating earnings fell 47 percent to $107 million. Second-quarter earnings include $65 million of estimated net loss related to the acquisition of Kiva Systems.

The Internet retailer also cut expectations for the current quarter, projecting an operating loss between $50 million and $350 million. It also estimates third-quarter revenue in the range of $12.9 billion to $14.3 billion, below the consensus $14.1 billion.

While a big portion of the company’s investments goes into the Kindle Fire tablet and the Kindle e-reader, Amazon is hoping that in the long-term, more devices sold translate into higher earnings from content. The company said the tablet remains the top-selling product on Amazon.com. It also stressed on the importance of its content offerings, announcing that the top 10 selling items on the site were digital products.

“Amazon Prime is now the best bargain in the history of shopping — that is not hyperbole,” chief executive Jeff Bezos said in a statement. “We successfully launched Prime seven years ago with free unlimited two-day shipping on one million items…Since then, Prime selection has grown to 15 million items. We’ve also added 18,000 movies and TV episodes available for unlimited streaming. And we’ve added the Kindle Owners’ Lending Library — borrow 170,000 books for free with no due dates…What hasn’t changed since we launched Prime? The price. It’s still $79.”

The stock dropped 0.28 percent after hours to be at $219.39.

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