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Amazon makes $126 million net loss while Q3 looks even worse

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Amazon has announced its second quarter earnings, and they don't make pretty reading for investors. They're not set to improve any time soon, either.

The company was typically vague when it came to precise sales and usage figures, but certain the financial numbers were plain for all to see.

Amazon has made a $126 million net loss over the past three months. That's the biggest since 2012, and is almost twice what analysts predicted them to be.

This loss comes despite revenues increasing 23 percent to $19.3 billion. With operating expenses rising by an almost identical amount - 24 percent at $19.4 billion - you might question how positive that is.

Of course, launching a smartphone is an expensive business. The development and manufacturing costs of the Amazon Fire Phone were always going to hit even a company as rich as Amazon in the pocket.

With the company selling its new camera-laden phone at near cost price, there's unlikely to be an immediate return from its investment - even if the sales numbers prove to be spectacular.

Indeed, the company's third quarter guidance looks even more grim. Amazon predicts a huge operating loss of between $410 million and $810 million over the coming months. Compared to last year's figure of $25 million, that's quite a drop.

Again, this is clearly tied to the cost of launching a new smartphone, so shouldn't be taken as a sign of the online retail giant's impending doom. The Fire Phone only launched today on one US network, so the company will be looking to ramp up production and expand over the coming months.

As Jeff Bezos says, "today customers all over the U.S. will begin receiving their new Fire phones — including Firefly, Dynamic Perspective, and one full year of Prime — we can’t wait to get them in customers’ hands."

Amazon also notes that its other big recent launch, the Amazon Fire TV, has "significantly exceeded our sales forecast," prompting the company to increase its manufacturing output.

All expensive but potentially rewarding stuff, though Amazon's investors may be struggling to reconcile the two this morning.

Read More: Amazon Fire TV vs Apple TV

Via: The Verge

chaosdefinesorder

July 25, 2014, 9:45 am

This is one of the things that annoys me about some of the short-term nature of the stock market;

Say for example you have a company with £100bn in cash in the bank and a £10bn profit for the last "unit time".

This company then decides to spend £15 billion on something because they have so much cash, while still making the same revenue as before;

The company still has **£95bn in the bank**, however the market only sees "a loss of £5bn" and flips their nut over it...

More to it than that, of course, but still something that "interests" me...

PGrGr

July 25, 2014, 9:48 am

I don't think the investors will be bothered.

Amazon's business model is market share, even if at the expense of ANY profit. Once they have put every other retailer out of business they'll be able to increase their prices by 0.0001% and still make the biggest profit the world has ever seen. Its the ultimate long term play.

(And that's coming from a friend who has just started working for them).

Everlast

July 25, 2014, 1:14 pm

I think you are over-simplifying things a bit too much. Of course the share price has accounted for the fact that £15B were one time expense. Investors are not idiots. The more worying fact here is that their entry into the mobile phone market is not looking too convincing. Average spec'd phone with 5-6 cameras and questionable benefit of the former looks like Amazon overinvested in the phone technology.
Tablets had much more synergies with their business and I think Amazon chief execs got tempted into phone business that is signifficantly different for them to be unsuccessful.

Everlast

July 25, 2014, 1:16 pm

The faster Amazon write off their R&D investment in mobile phones the bettetter for their share price. Just write it off as a poor project and move on to minimise damage.

Alex Walsh

July 25, 2014, 2:21 pm

If you want someone to do financial analysis, I'm available for hire as that wasn't very impressive. Typically R&D costs related to specific products that will see the light of day are written off over the expect lifespan of the product BUT only starting when the product is commercially available- so any costs related to the Fire phone will be sitting on the balance sheet and wont have affected profit. Pure research with no/little commercial application is written off as incurred.

It may be that they've decided they'll not make a profit on the units and have written the costs off but that's unclear from the article.

Everlast

July 27, 2014, 1:39 pm

How you account for the money invested in R&D has more to do with accounting rather than financial analysis. when I say "write off" I mean don't expect anything back and not any financial terms.
I am not sure how experienced you are in financial analysis (likely a student) but I would suggest exporing other fields to improve your employment outlook.

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