Amazon shares tank after big Q2 loss
LOS ANGELES — Amazon.com shares tumbled Thursday after the e-commerce giant posted a wider-than-expected $126 million loss for its second quarter despite revenue of $19.34 billion.
Amazon CEO Jeff Bezos didn't address the loss in the earnings release, but mentioned new ventures. "We continue working hard on making the Amazon customer experience better and better," he said in a statement.
Shares of Amazon plunged 10%, to $322.50, in after-hours trading. The company announced its results after markets closed.
Amazon's expansionist spending spree is taking its toll. Beyond the $126 million loss, it said it expects to lose up to $810 million in the upcoming quarter — compared with a $25 million loss in the third quarter last year.
Forrester analyst Sucharita Mulpuru blamed the loss solely on Amazon's Prime program, which offers two-day free shipments to customers for $99 a year.
"Google, Apple and Facebook invest all the time in innovation, and don't have losses like this," she says. "The big difference is Amazon is spending all this money on shipping those orders."
The costs of free shipping are larger than Amazon expected when it started the program. Amazon, she says, has "created a beast they now have to feed."
On Friday, the online retail giant expands into the cutthroat world of smartphones with its first attempt, Fire, joining a crowded market that includes Apple, Samsung Electronics and Microsoft.
Last week, it also launched an e-book subscription service, Kindle Unlimited, offering access to 600,000 e-books and audiobooks for $9.99 a month.
Critics were not kind, noting that most current fare is not included with the service. Reviews for the new Fire haven't been raves, either.
The mobile market is huge and continues to grow. This year the total mobile user base of smartphone users will reach 1.76 billion, according to researcher eMarketer. Some 50% of smartphone users will be on Android phones, the Google-owned operating system that Amazon uses for its smartphone and Kindle tablets.
Why Amazon looked to expand to the smartphone: Retail sales on smartphones this year in the United States will top $18.4 billion, up 25.4% from 2012, says researcher eMarketer.
The online retail market will surpass $304 billion in 2014, up from $262.3 billion in 2013, eMarketer says.
Tuna Amobi, an analyst at S&P Capital IQ, says Amazon is willing to sacrifice profits for market share. "At some point, investors will want to pin them down and make a good case why this needs to continue," he says. "Sooner or later, they have to return some capital."
According to online finance tracker Trefis, Amazon has 20 million subscribers to its Prime two-day free shipping, and movie/TV and music-listening and viewing service.
Amazon charges $99 yearly for the service, and revenues earned from Prime are just 2% of sales, with "much higher," margins, according to Trefis.
Additionally, Prime customers tend to buy twice as much as regular customers, which is why Amazon pushes Prime — and has the new phone geared to Prime members.
The Fire phone sells for $199 with a two-year contract with AT&T, but purchasers get a free year of Prime with it.
Richard Doherty, an analyst with the Envisioneering Group market research firm, doesn't see Amazon discounting the Fire phone — yet. "They will discount if it is not low in inventory perhaps," he says. "As they did multiple times with the Fire tablet over many seasons."
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