Amazon.com Forecast Misses Estimates After Spending Growth

Amazon.com Inc. (AMZN), the world’s largest online retailer, forecast lower second-quarter operating profit than analysts predicted as it builds warehouses and promotes its Kindle electronic-book reader.

Operating income, which excludes taxes and interest, will be $95 million to $245 million this quarter, the Seattle-based company said today in a statement. Analysts surveyed by Bloomberg expected, on average, operating income of $369.5 million.

This is the fourth straight quarter that Amazon Chief Executive Officer Jeff Bezos has reported operating profit that missed estimates as he uses the company’s growing cash hoard to build distribution centers, expand online video-streaming services and promote the Kindle.

“It’s not a given that all the spending will drive future earnings at a robust pace,” said Fred Moran, an analyst with Benchmark Co. in Boca Raton, Florida, in an interview today. “It’s entirely possible they spend all this money and don’t get a dramatic return for it.”

Amazon shares were little changed at $181.85 as of 5 p.m. New York time in extended Nasdaq Stock Market trading. Earlier, the stock declined $3.12 to close at $182.30.

‘Soft Guidance’

“It’s surprising the stock is not down more given the extent of the miss on the earnings and the soft operating guidance,” Moran said.

Sales in the first quarter rose 38 percent to $9.86 billion, beating the $9.54 billion average prediction of analysts in a Bloomberg survey.

Net income was $201 million, or 44 cents a share. That compared with 61 cents that analysts predicted. Amazon doesn’t forecast net income.

Amazon more than doubled capital expenditures to $979 million last year and will spend about $900 million this year as part of its effort to expand warehouses and data centers, according to January estimates from James Mitchell, an analyst at Goldman Sachs Group Inc.

As it expands, Amazon is running into disputes with states including California, New York and North Carolina, which want to collect sales tax from it. Amazon has facilities in about 20 states, said Heath Terry, an analyst at Canaccord Genuity, in a report yesterday. Amazon has said it only charges a sales tax in five states.

Amazon may miss out on as much as $520 million in revenue this year if a change in U.S. policy forces it to collect sales taxes, according to data compiled by Bloomberg. Such a law may curb about $7 billion in domestic online purchases, the data show.

Photographer: David Paul Morris/Bloomberg

Jeff Bezos, chairman and chief executive officer of Amazon.com Inc., speaks during an interview in Cupertino, California, on Oct. 6, 2009. Close

Jeff Bezos, chairman and chief executive officer of Amazon.com Inc., speaks during an... Read More

Close
Open
Photographer: David Paul Morris/Bloomberg

Jeff Bezos, chairman and chief executive officer of Amazon.com Inc., speaks during an interview in Cupertino, California, on Oct. 6, 2009.

Online Bookseller

The company got its start in 1995 as an online bookseller. It has since expanded into thousands of products -- from DVDs to baby clothes. Amazon Web Services, which lets customers rent computer capacity to house data and run computer applications, may one day be as big as the retail business, the company has said.

Amazon may have sold more than 8 million Kindles last year, accounting for about 5 percent of sales, according to Benchmark Co. The device is its best-selling product. Amazon doesn’t disclose Kindle sales figures.

EBay Inc. (EBAY), owner of the world’s biggest online retail marketplace, reports its quarterly financial results tomorrow.

To contact the reporter on this story: Joseph Galante in San Francisco at jgalante3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.