Amazon Misses as Web Spending Weighs on Earnings
Jeff Bezos, chairman, president and chief executive officer of Amazon.com Inc. Photographer: Jin Lee/Bloomberg
July 23 (Bloomberg) -- Colin Gillis, an analyst at BGC Partners in New York, talks with Bloomberg's Susan Li about Amazon.com Inc. and Microsoft Corp.'s financial results and outlook. Amazon.com, the largest Internet retailer, forecast third-quarter profit that missed analysts' estimates after it cut prices on the Kindle, its best-selling product, and as falling currencies erode overseas sales. Microsoft, the world's largest software maker, reported fourth-quarter profit that topped analysts' estimates after customers purchased more personal computers running the Windows operating system. (Source: Bloomberg)
Amazon.com Inc. forecast third- quarter profit that missed analysts’ estimates after it cut prices on the Kindle, its best-selling product, and propelled capital spending to a record.
Operating income in the current period will be between $210 million and $310 million, Amazon said in a statement today. Analysts surveyed by Bloomberg had forecast operating profit of $361.6 million. Amazon’s second-quarter per-share profit also missed analysts’ predictions. Shares tumbled in late trading.
Under Chief Executive Officer Jeff Bezos, capital spending ballooned to $196 million last quarter as Amazon.com built more warehouses to safeguard a growing array of products that range from books to car parts. He’s also adding data centers to beef up a business of providing computing services to companies.
“The companies that pulled back in the downturn are now accelerating their investments,” said Colin Gillis, an analyst at BGC Partners LP. He has a sell rating on Amazon.com. “I don’t think Amazon is focused on any one quarter’s performance. They’re building for the future.”
The jump in capital spending was the largest year-over-year increase for the second quarter since 2005.
The company slashed prices on the Kindle to repel a threat posed by Apple Inc.’s iPad tablet computer. That may eat into profit too, said Sandeep Aggarwal, an analyst at Caris & Co.
Amazon.com dropped 15 percent in late trading. It had risen $2.64 to $120.07 at 4 p.m. New York time in Nasdaq Stock Market trading, trimming the year-to-date decline to 11 percent.
‘Big Negative’
Amazon.com, which gets almost half its revenue from outside North America, was further stung by falling European currencies, which diminish the value of overseas receipts.
“This was a big negative quarter for them,” said Aggarwal, who’s based in San Francisco and has a “buy” rating on the shares. “Amazon has been a momentum stock. There was a big shortfall in the margin side.”
Net income rose to $207 million, or 45 cents a share, from $142 million, or 32 cents, a year ago, the Seattle-based company said today in a statement. Analysts surveyed by Bloomberg expected 54 cents, on average.
Second-quarter sales rose to $6.57 billion. Analysts had estimated $6.55 billion. Revenue in the current period will be between $6.9 billion to $7.63 billion, the company said. Analysts had estimated $7.17 billion in sales.
Kindle, Web Services
To move beyond online retailing and vie with Apple’s iPad, Amazon.com is adding features to the Kindle. Apple said this week that it has sold 3.27 million iPads since its April release. That’s bigger than the 3 million Kindles that Susquehanna Financial Group estimates Amazon.com has sold.
This week, Amazon.com said sales of the Kindle and e-books have accelerated since the iPad’s release. It doesn’t report Kindle sales, though Caris & Co. estimates that the device will generate $2.38 billion in revenue this year.
Another newer area of growth is Amazon Web Services, AWS, a business formed in 2006 that lets companies rent, rather than buy, servers -- the powerful, pricey computers that run corporate computer networks and websites. In April, Amazon.com expanded AWS to Singapore to capture business in Asia.
“We’re growing very fast,” Amazon.com Chief Financial Officer Tom Szkutak said on a conference call, referring to AWS and the company’s retail operations. “So we’re adding capacity to support growth.”
By selling an ever-widening range of products, Amazon.com is becoming more a barometer of overall consumer sentiment and deriving less benefit from the broader shift to Internet purchasing, according to BGC Partners.
Quarterly sales growth of 41 percent decelerated from the 46 percent growth in the first three months of the year. Analysts predict that sales will continue to slow for the rest of the year, partly a reflection of Amazon.com’s size.
“As Amazon broadens its inventory and categories, the company increasingly becomes a proxy of consumer spending,” Gillis said. “A slowing consumer is likely to taper growth across every channel including e-commerce.”
To contact the reporter on this story: Joseph Galante in San Francisco at jgalante3@bloomberg.net.
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