Amazon, the world’s largest online retailer has announced a second-quarter loss of $126 million (this comes up to more than double the predicted amount) despite ever climbing sales. Apparently, expenses also jumped to $19.4 billion.
One of the most highly valued companies in the United States is losing significant amounts of its profits due to investments that its co-founder and chief-executive (Mr. Bezos) has been making in cloud computing and gadgets.
Shareholders have been patient and supportive of Bezos thus far, but they are seeking signs that his strategy will work in the long run. Michael Pachter, Wedbush Securities analyst explained that everyone is making investments but that there is a point after which investors can’t see if their investment will produce a payoff and what that payoff is going to be.
While for the past years, Mr. Bezos has enjoyed the support of investors (as they also thought that investments would gain share), it seems that this approach has not paid off in the long run.
Amazon was rewarded with a Standard & Poor 500 Index highest valuation and are currently trading at 569 times earnings. This year, however, Amazon shares have gone down 10pc.
Distribution, grocery delivery, smartphones, tablets and services have all been expanded on Bezos’ instructions but it would seem that little sizable profits are coming from this expansion. Moreover, Amazon has actually issued a forecast that predicts even wider losses during the third quarter.
Sucharita Mulpuru, Forrester Research analyst believes that as long as Amazon will have money to pour into their business, they will do just so.
In its financial statements, web services are listed under “other” and revenue here declined to $87 million from the prior period (actually declining 3pc).
The Alibaba Group Holding Ltd., in contrast to Amazon, have actually achiever better margins and are planning public offerings in the future. The profits these Chinese web retailer disclosed back in May 2014 totaled 2.08 billion euros up to the end of December while amazon earned 204 million.
Amazon is not yet sharing information that could explain whether the investments are working since key portions of the business are still not present on its financial reports (including Kindle sales). According to analysts, Amazon neither answers questions, nor does it provide metrics that could explain the current trend. They also keep investing in exactly those businesses that are incredibly capital-intensive.
Whether Amazon changes its tactic or it will stick to continuing to invest in the same products remains to be seen.