For Amazon.com, down is the new up. The Internet retailer said Tuesday that its secondquarter profit dropped by 8 percent, which might seem like bad news. But the decline was not nearly as much as Amazon, or analysts, had expected, and the profit was being sacrificed for what the company said was a good cause, new investments in technology and warehouses. Revenue continued to be strong, rising 51 percent.
Three months ago, Amazon predicted that second-quarter profits might fall by as much as two-thirds. But the company is apparently selling so many things to so many people that it can make sizable investments and barely feel the pain.
“Low prices, expanding selection, fast delivery and innovation are driving the fastest growth we’ve seen in over a decade,” Jeff Bezos, Amazon’s founder and chief executive, said in a statement.
So what if expenses soared and profit margins shrank? Amazon has never emphasized profit as some shortterm investors might have wished. It took years to turn a profit because it was working so hard to achieve a dominant position in Web retailing. That distinction was achieved long ago; now it is once again spending heavily to solidify and extend its position, mostly by building two kinds of storage centers, for physical goods and for data.
Three weeks ago, Amazon announced it would open a 900,000-square-foot warehouse in Plainfield, Ind., its fourth in Indiana. The next day it announced its fourth warehouse in Arizona, this one a 1.2 millionsquare-foot behemoth in Phoenix.
The original 2011 plan was to open nine new fulfillment centers. Thomas J. Szkutak, the company’s chief financial officer, said in a conference call with analysts Tuesday afternoon after the results were announced, that the total had risen to 15, “and we’re actually planning on a few more than that.” He said the number of pre-2011 centers was “in the low 50s.”
The Seattle-based company is also expected to follow the success of its Kindle e-reader by introducing a multipurpose tablet this fall. The tablet will allow users to read the electronic books they bought from Amazon, listen to the music they bought from Amazon and watch video they bought from Amazon, all on one device.
The company reported that net income for the quarter fell to US$191 million, or 41 cents a share, compared with US$207 million, or 45 cents a share, in the second quarter of 2010. The comparison would have been worse, but the latest quarter’s results were helped by a US$15 million investment gain. Revenue rose to US$9.91 billion. Favorable foreign exchange rates contributed US$477 million to the 2011 sales results.
Analysts had expected secondquarter earnings of 35 cents a share on revenue of US$9.373 billion, according to Thomson Reuters. During the conference call, at least one analyst offered his congratulations.
When Amazon reported in April that its net income in the first quarter was down an unexpected 33 percent from 2010, it simultaneously squelched expectations for the second quarter. Two bad quarters are the beginning of a trend, but investors bid up the stock price about 10 percent in the last three months. The market value of Amazon at Tuesday’s close was US$100 billion.
Amazon recently achieved a milestone with regard to its original business, bookselling. In May, less than four years after the introduction of the Kindle, the company said it was selling more e-books than physical books. Last week, as if to punctuate the quickening transition to digital, came the news that the Borders chain of bookstores was liquidating.
When Amazon began mailing books to Internet buyers in 1995, Borders reigned as the Amazon of the era; it was smart, dominant and feared. But despite Borders’s selling many copies of “The Innovator’s Dilemma,” Clayton Christensen’s classic work on how successful companies ignore disruptive technologies at their peril, it seems as if no one at the chain may have read it. Borders essentially ignored the Internet, and the Internet mowed it down.
Mr. Bezos has always been determined not to be out-innovated. The new tablet will put the company into direct competition with Apple and its iPad, plus a clutch of would-be iPads from other companies. “Their e-book success is enormous but their success with digital video and music is not so enormous,” said Bill Rosenblatt of GiantSteps Media Technology Strategies, a consulting firm. “They need to do something to address the fact that people are using media consumption devices that handle everything.”
In the meantime, the retailer once again warned that profits would suffer because it was investing in the future. It said Tuesday that operating income could decline in the third quarter by as much as 93 percent. (New York Times)