Amazon's third quarter misses mark; Outlook sluggish

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.
Written by Larry Dignan, Contributor

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.

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