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Amazon Earnings Disappoint Wall Street

Deborah Wang
10/26/2011

Seattle–based Amazon.com reported third–quarter earnings yesterday. The company says net sales were up 44 percent from same quarter last year. At the same time, net profits were down 73 percent. The numbers fell short of analysts' expectations, and sent the company's stock tumbling in afterhours trading. KUOW's Deborah Wang reports.

TRANSCRIPT

Amazon put a positive spin on this quarter's earnings report. Its press release highlighted the fact that sales of books, electronics, digital media and other products were up 44 percent from the same quarter last year, to almost $11 billion.

Tom Szkutak is the company's chief financial officer.

Szkutak: "We're seeing, you know, really unprecedented growth. We're seeing the best growth rates we've seen since 2000. And so with this strong growth, we're investing in a lot of capacity. And that's what we've been talking over the past couple quarters, and that's what you are seeing in our Q–3 results specifically."

And as for investments in capacity, Szkutak says the company is building 17 more distribution centers this year; that's two more than previously announced. It's hired more than 17,000 people worldwide; that's a 52 percent increase in its workforce. Szkutak says the biggest increases in hiring have been in operations and customer service.

It's also investing more in marketing, technology and content. All of those investments are affecting the company's bottom line.

Amazon is also bringing three new Kindle ereaders to market. Many analysts believe the company is selling the top–of–the–line model, called the Kindle Fire, at a significant loss.

Kerry Rice is the senior internet analyst with Needham and Company.

Rice: "It kind of goes back to the old razor/razorblade model, where a company might lose money on the actual device, but make up that money on kind of the replacement razors, which for Amazon is digital goods — the books, the movies and now applications (or apps)."

The Kindle Fire is currently priced at $199. Rice believes Amazon could be losing up to $80 on every device it sells.

The Kindle Fire goes on sale November 15, and the company says it expects a record quarter for device sales. But it is also warning that next quarter's bottom line may be even worse than this one, with the outside possibility of a $250 million loss.

I'm Deborah Wang, KUOW News.

© Copyright 2011, KUOW

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