(Bloomberg)
Profits? We don’t need no stinking profits!
Despite a jump in sales, Internet giant Amazon reported a 96 percent drop in second-quarter net income and warned it could post an operating loss of as much as $350 million in the current quarter.
Earnings are getting sapped away as CEO Jeff Bezos continues a relentless spending spree, rapidly expanding the company’s network of warehouses while also heavily investing in tablet readers including the Kindle Fire.
Nevertheless, Wall Street continues to tolerate Bezos’ spending habits, betting that Amazon’s aggressive expansion is creating enormous potential for profitability down the road.
The report sent the shares up as much as $2.99, or 1.36 percent, to $223 in after-hours trading. Earlier in regular trading, the stock closed at $220.01.
“We’re investing a lot because of the opportunities we see,” CFO Tom Szkutak told analysts yesterday on a conference call, noting that Amazon has opened eight new distribution warehouses this year, with plans to open 10 more.
New construction this fall will help create a third-quarter operating loss between $50 million and $350 million — a surprise to the Street, which was expecting an operating profit of $120 million.
Another key culprit: development costs for the Kindle Fire, which critics say has needed tweaking since it was launched last year for a head-to-head battle with Apple’s iPad.
Analysts say Amazon and its suite of reading devices increasingly pose a threat to Apple. While the Kindle is far cheaper than the iPad, it’s also attracting tens of thousands of apps from outside developers.
Before Amazon released results yesterday, its shares were trading at more than 190 times Wall Street’s profit estimates — a staggering valuation that’s more than 10 times that of Apple.
Amazon posted net income of $7 million, down from $191 million a year ago. Revenue rose 29 percent to $12.8 billion.