Amazon failed to meet Wall Street expectations Tuesday, reporting a $63 million quarterly profit — down 73 percent from the same period a year ago. Perhaps more startling, the company acknowledged that it may post an operating loss next quarter, saying that results could range from a $200-million loss to a $250-million profit. What's going on? Here, three explanations:
1. Amazon is investing in infrastructure
The company added 17 new fulfillment centers this year to keep up with growing demand, an expansion that cut into profits, says Danielle Kucera at Bloomberg. Amazon has also been updating and expanding its web services (think cloud computing). And that doesn't come cheap.
2. It's getting expensive to ship goods
"Soaring shipping expenses" are also bruising Amazon's bottom line, notes analyst Colin Gillis, as quoted by Bloomberg. The rise of Amazon Prime, which allows customers to pay just $79 a year for unlimited two-day shipping, is partly to blame. For the third quarter, Amazon collected just $360 million in shipping fees — but racked up $918 million in shipping expenses.
3. Jeff Bezos and Co. are developing new products
"Amazon's spending has increased dramatically as it enters a new phase of its existence," says Dwight Silverman at the Houston Chronicle. Developing new products costs money, and in September, the company announced four new Kindles. While the hotly anticipated $199 Kindle Fire tablet doesn't go on sale until next month, the device's production may have affected this quarter's earnings. And sales will not recoup expenditures: The new Android tablets reportedly cost $209.63 each to manufacture.