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Amazon Sales Up 50% But Profits Take A Tumble

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Amazon has announced that sales for the last quarter rose over 50 per cent, but, due to continued investment in its distribution network and cloud computing operation, profits took a tumble.

Sales for the second quarter of this year rose to $9.91 billion dollars, a 51 per cent rise compared to the same period in 2010 when sales of $6.57bn were recorded. This is on the back of strong sales of the Kindle (especially the Kindle with Special Offers version) and other electronic devices.

Despite the rapid acceleration in sales at the online retailer, Amazon’s net income dropped from $207 million in the same quarter last year to just $191 this year. However investors don’t seem deterred by this because shares in the company rose by 6 per cent in after hours trading. This will mean that Amazon shares rose by 11 per cent since the turn of the year.

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The reason for the small margins is that Amazon is continuing to plough money into its distribution network, to keep up with demand, and in server farms to power its newly developed cloud computing service.

Amazon is also believed to be developing a tablet to rival the iPad and could launch it in the next quarter. Amazon Chief Financial Officer Tom Szkutak declined to comment on whether the company was working on a new tablet computer. One indication however that the tablet is on its way are the thin margins predicted by Amazon for the next quarter, suggesting the company is spending heavily on the slate.

Looking ahead, Amazon is predicting sales of between $10.3bn to $11.1bn for the third quarter, which would again be ahead of analysts’ expectations. Once again though Amazon are saying profits will be low (between $20m and $170m).

While investors will be happy with the continued rapid sales growth and investment in the future of the company, at some stage they will want to see indications of profits rising again.

Source: Amazon

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