Amazon's third quarter misses mark; Outlook sluggish

Amazon's third quarter misses mark; Outlook sluggish

Summary: Amazon's September quarter and fourth quarter outlook failed to live up to expectations. Strong orders for Amazon's new Kindles are requiring increased investment.

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Amazon's third quarter fell short of expectations and the company's outlook also was light. Strong orders for Amazon's new Kindles are requiring increased investment.

For the third quarter ending Sept. 30, Amazon reported earnings of $63 million, or 14 cents a share, down from $231 million, or 51 cents a share, a year ago. Revenue in the third quarter surged 44 percent to $10.88 billion.

However, Wall Street was expecting earnings of 24 cents a share on revenue of $10.95 billion. Analysts were expecting a margin hit as Amazon invests in its infrastructure and rolls out low-priced Kindles. Preview: Amazon: Strong third quarter on tap, but Kindle armada to hurt margins

As for the fourth quarter outlook, Amazon projected revenue between $16.45 billion and $18.65 billion. Wall Street was looking for revenue of $18.15 billion. Amazon projected an operating loss of $200 million to a profit of $250 million. Wall Street was looking for $487 million.

In a statement, Amazon CEO Jeff Bezos talked up the Kindle launch and noted that the Sept. 28 "was the biggest order day ever for Kindle, even bigger than previous holiday peak days." However, the pricing of Amazon's Kindles---$79 to $149---translates into falling profit margins. Amazon is hoping to make up the pricing difference with advertising and product sales.

Bezos added that Kindle demand means "we're increasing capacity and building millions more than we'd already planned."

On a conference call, Amazon CFO Tom Szkutak said:

Our Q3 2011 capital expenditures were $529 million. The increase in capital expenditures reflects additional investments in support of continued business growth, including investments in technology infrastructure, including Amazon Web services, and capacity to support our fulfillment operations.

He also said that the fourth quarter outlook includes the profit hit from the Amazon Kindle Fire.

Also: Cracking Open the Amazon Kindle 2011 | Amazon Kindle Fire: The math behind a subsidized tabletAmazon’s Kindle Fire: The ultimate integration, services channel

Coming off the quarterly disappointments from Netflix and Apple, investors were in no mood for Amazon's miss. Shares were whacked after hours.

By the numbers for the third quarter:

  • North America sales were $5.93 billion, up 44 percent from a year ago. International sales were $4.94 billion, up 44 percent from a year ago.
  • Media sales were up 24 percent in the quarter to $4.15 billion. Electronics and other merchandise sales were $6.32 billion, up 59 percent from a year ago.
  • Fulfillment spending was $1.12 billion in the third quarter, up from $680 million a year ago.
  • Technology and content expenses were $769 million, up from $442 million a year ago.

Topics: Amazon, Banking, Enterprise Software

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9 comments
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  • No biggie.

    Everyone knows Amazon has been investing hugely in Kindle R&D, data centers and expanding Prime content. Look for the Q4 2011 and beyond to recover as all these investments will pay off.
    MSFTWorshipper
    • sure, ...

      @MSFTWorshipper
      that's what they say for a decade now. with these profit numbers they now have a P/E beyond 200. talking about crazy numbers ...
      bannedfromzdnetagainandagain
    • Initially, the Kindle Fire will seem like a hit, but in the end,

      if will be a drag on Amazon.
      adornoe
  • RE: Amazon's third quarter misses mark; Outlook sluggish

    Ouch! That's a whole lotta rebounding gotta happen.
    CowLauncher
  • RE: Amazon's third quarter misses mark; Outlook sluggish

    This illustrates the dangers of trying to go head-to-head against Apple at a lower price point. It's very tough out there. I hope Amazon will be able to offset its losses with higher book sales and sales of other content.
    roger that
  • RE: Amazon's third quarter misses mark; Outlook sluggish

    The kindle sales alone will make up most of the short comings. Once they are into stores, they will take off like hot cakes and the services will escalate too. In addition, the holiday season is near. They will make a killing. I think they've got the right stuff!
    eargasm
    • yep

      @windozefreak
      the will make a killing in losses and risk the company over going head to head with apple. everyone that ever tried to go against apple in the last decade lost. what makes you think a retailer could do what everyone else has failed at so far?
      bannedfromzdnetagainandagain
      • I doubt it was meant to compete with Apple...

        and the intent was to use the Kindle Fire as a direct means to all things that Amazon sells, including services and products. What Amazon has for sale is not the same as what Apple sells. Amazon is intending its Kindle Fire as a POS device.
        adornoe
  • RE: Amazon's third quarter misses mark; Outlook sluggish

    Kindles are Barbie dolls. Profits are not based on selling Kindles, but on the content that the Kindles make available. With the ability to read magazines and other graphic material in color, as well as the vast array of content available, let them give Kindles away for a while and then watch the long terms profits develop!
    Trilogy