Amazon’s Profit Slows To A Trickle As Bezos Goes All-In On The Kindle
MARKETS | 7/26/2012 @ 4:48PM |4,368 views
Amazon’s Profit Slows To A Trickle As Bezos Goes All-In On The Kindle
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Bezos is trying to extend Amazon’s tentacles across different industries – Photo credit: jurvetson
In an action-packed Thursday afternoon, Amazon.com posted second quarter earnings, missing both top and bottom-line estimates by a small margin. The company run by Jeff Bezos has been subsidizing the cost of its best selling product, the Kindle Fire, in order to gain a foothold in the market for tablets, and expects to record a loss in Q3.
Amazon’s net income fell a whopping 96% to $7 million in the second quarter. The company earned one cent per share, a penny away from the two cent consensus estimate. Still, the decline in Amazon’s profits is part of a strategy by Jeff Bezos to sacrifice current earnings in order to reap higher profits in the future.
Revenues jumped 29% to $12.83 billion, despite a $272 million unfavorable currency impact. Operating cash flow was $3.22 billion for the trailing 12 months, while free cash flow dropped 40% to $1.1 billion. The cost of sales surged 26% to $9.5 billion, or about 74% of sales.
Amazon continues to derive most of its revenues from North America, where sales surged 36% to $7.33 billion; international sales grew 22% to $5.51 billion. Worldwide media sales rose 13% to $4.12 billion, while electronics and general merchandise revenues surged 38% to $8l.16 billion.
The company made it clear that its Kindle Fire remains their “#1 best selling product,” adding that their top 10 best selling products were all digital products. Amazon is looking to tap into the fast-growing tablet market with their Google Android-powered Kindle, becoming one of the major competitors to Apple’s iPads. Farther behind is Microsoft, which has taken its time to develop its mobile and tablet version of Windows.
Bezos is also trying to tap into the online streaming business, much to Reed Hastings and Netflix’s dismay. The company announced that Amazon direct, their online streaming service, now has more than 18,000 movies and TV episodes; Amazon also noted that LOVEFiLM is the leading European film and TV subscription service.
Amazon gave pretty specific third quarter guidance on Thursday. The company noted net sales should come in between $12.9 and $14.3 billion, up between 19% and 31% from the year-ago quarter. It also expects an operating loss of between $350 and $50 million in Q3, down from a profit of $79 million. It expects to use $275 million for stock-based compensation.
After having rallied along with the general market, shares in Amazon initially tanked as the earnings were released, falling as much as 5%. The stock recovered in early after-hours trading, and was down 1% to $217.75 by 4:41 PM.