Amazon’s profits were significantly lower in the second quarter. Profits have been significantly weighed down over the last few quarters due to the company’s ambitious spending plans. Profits dropped 96% to $7 million, or $0.01 per share, compared with $191 million in the same quarter a year ago.
The company also saw a healthy bump in sales across multiple businesses. The company reported a sales increase of 29% to $12.83 billion. This was up from $9.9 billion during same time last year. Amazon saw record sales in 2011. Wall Street analysts had predicted revenues of $12.9 billion. The company is estimating revenues between $12.9 billion and $14.3 billion for the third quarter versus estimates from Wall Street analysts of $14.1 billion.
CEO Jeff Bezos has said that the company is spending now on expansions in multiple businesses to achieve long-term gains. The company has incurred significant expenses related to the building of additional distribution centers. The company has opened eight new warehouses so far this year and has plans of opening 10 more.
The company’s operating expenses also included adding capacity to Amazon Web Services and overall retail investments, such as the expansion of same-day delivery of products. Amazon has been investing heavily in the Kindle and last fall saw the high-profile release of the Kindle Fire tablet. Amazon’s library currently offers around 18,000 movies and TV episodes, and 170,000 lendable books.
Amazon Prime is the company’s $79-a-year loyalty reward program. The program has grown beyond offering free two-day shipping on products to include e-book borrowing and streaming access for TV shows and movies. Daniel Kurnos, an analyst at Benchmark Capital, wrote in a research note that Amazon “may be facing further margin pressure due to the success of its Amazon Prime offering.”
Victor Anthony, a senior analyst with Topeka Capital markets, said, “The guidance for the third quarter was a bit disappointing on the margin line, indicating that Amazon continues to spend at a fast pace to drive growth. Our thesis remains the same, however. We see an inflection point in margins in 2013 and we continue to see a transformation model led by share gains in e-commerce, Kindle devices driving sales of high margin digital media content, and Amazon Web Services continuing into a meaningful cloud services business.”
