Amazon's sales rose by more than 50 percent year-on-year in the second quarter as its ad-supported Kindle took off in the US, but profits fell as a result of investment in the business.
Amazon's sales have jumped 50 percent in a year, with chief executive Jeff Bezos hailing the success of the Kindle e-reader. Photo credit: Amazon
On Tuesday, the online retailer said net sales for the quarter were $9.91bn (£6.05bn), up 51 percent on $6.57bn a year ago. Amazon said it was the fastest growth it had seen since its early years of operation.
However, its profits dropped by eight percent from $207m to $191m, largely due to investment in order fulfilment, marketing and tech infrastructure.
"Low prices, expanding selection, fast delivery and innovation are driving the fastest growth we've seen in over a decade," chief executive Jeff Bezos said in a statement.
In addition to its online retail business, Amazon sells hardware via its line of Kindle e-readers, and the company reportedly plans to release a tablet computer by October. It has also pushed forward in media downloads, offering music, movies, applications and TV shows in some of its markets. Beyond this, its Amazon Web Services cloud-computing arm has been making progress, setting up partnerships with Oracle and SAP during the quarter.
The company is notoriously quiet about the success or otherwise of its specific product lines, but Bezos singled out the Kindle 3G with Special Offers for particular praise, saying it had become the fastest-selling version of the e-reader device. The $139 US-only variant is the same as a standard Kindle 3G, which retails at $189, except for the fact that its screensaver carries adverts from sponsor AT&T.
The 51-percent rise was common to both North American and international sales. However, the international segment — which covers the UK, Germany, Japan, France, China and Italy — benefited from favourable exchange rates. Without that positive impact, the increase there would have been only 36 percent, and overall sales growth would have been 44 percent.
Low prices, expanding selection, fast delivery and innovation are driving the fastest growth we've seen in over a decade.– Jeff Bezos, Amazon
Amazon's Media division sales were up 27 percent year-on-year, reaching $3.66bn, but when adjusted for exchange rates, the rise was only 20 percent. Its other division, Electronics and Other General Merchandise (EGM), recorded $5.89bn in sales, a 69-percent boost, or 62 percent without the exchange-rate benefit.
The drop in profits was largely down to a massive rise in operational costs. Fulfilment, marketing, technology, content, and general and administrative costs totalled $2bn, or 20.2 percent of sales, up from $1.2bn, or 18.3 percent of sales, in the second quarter of 2010.
In an earnings call on Tuesday, Amazon chief financial officer Tom Szkutak said the company was investing in order fulfilment capacity — both in terms of personnel and new distribution centres — and infrastructure capacity, something he called a "high-quality problem". He said such long-term investments were responsible for much of Amazon's sales growth.
"I do feel very good about those investments," Szkutak said. "[They] are something that we've done before, and it's something that we've been working to perfect really since we opened our doors back in the mid-90s. In terms of... another set of investments, certainly you're seeing we're investing in the conversion from physical to digital."
Szkutak added that Amazon's investments in its Kindle and Amazon Web Services businesses had paid off with "great traction".
Amazon's ability to provide its cloud services to business customers is largely a by-product of the investment it makes in its own systems. Szkutak suggested it was hard to say how big a business AWS would become, but he did describe it as "a very, very big space".
"You should expect that we continue to invest in that business because of the high-growth nature of it," he said. "It's growing very fast. It is one of the reasons why you're seeing certainly a big contributor to our [capital expenditure]. It's also reflected in the tech and content line."
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