Despite introducing new Kindles this quarter, Amazon Inc. (NASDAQ:AMZN) posted its first quarterly loss in four years. The online retailer reported a net loss of $274 million for the third quarter, with earnings of $13.81 billion. Analysts had expected a loss of $0.07 per share and revenue of $13.92 billion, according to a poll by FactSet.
LivingSocial, the group deals site, was responsible for more than half of the loss. Amazon invested over $200 million in the site during the last two years. Net loss was $274 million in the third quarter, or $0.60 per diluted share, compared with net income of $63 million, or $0.14 per diluted share, in the third quarter 2011. Of the total loss, $169 million was related to the equity-method share of the losses reported by LivingSocial, primarily attributable to its impairment charge of certain assets, including goodwill.
The company’s CEO was less interested in explaining the investment in LivingSocial, but instead talked about the upcoming devices. “Our approach is to work hard to charge less. Sell devices near break even and you can pack a lot of sophisticated hardware into a very low price point,” said Jeff Bezos, founder and CEO of Amazon.com. “And our approach is working – the $199 Kindle Fire HD is the #1 bestselling product across Amazon.com, Inc. (NASDAQ:AMZN) worldwide. Incredibly, this is true, even as measured by unit sales. The next two bestselling products worldwide are our Kindle Paperwhite and our $69 Kindle. We’re selling more of each of these devices than the #4 bestselling product, book three of the Fifty Shades of Grey series. And we haven’t even started shipping our best tablet – the $299 Kindle Fire HD 8.9” ships November 20”.
The company’s year-over-year quarterly revenue rose by 25 percent, but it’s the smallest year-over-year gain in three years. The earnings took the beating, due to increases in costs, owing to its new one-day delivery warehouses and more than $2 billion spent on data centers.
"Amazon has already played its cards—we know what their lineup is for the holiday season," said Sarah Rotman Epps, an industry analyst at Forrester Research. "[Amazon] certainly still has the price advantage for the Kindle Fire versus the iPad mini, and they have a huge number of customers and not everyone is Apple-persuadable. Is there a market for Kindle Fire? Yes. Will the iPad mini put a damper on potential for Kindle Fire? Yes. I see what’s happening is that there’s still opportunity for Amazon.com, Inc. (NASDAQ:AMZN) in this market, but Apple Inc. (NASDAQ:AAPL) is turning up the heat".
Worldwide shipping costs were 4.6% of net revenue, compared to 4.6% in the previous quarter and 5.1% in the third quarter of 2011. Shipping losses continue to be an issue for the company facing razor thin profitability, but it is a mild positive that losses have stabilized as percent of total revenue in the last two quarters.
The earnings report, released after the market closed, sent Amazon.com, Inc. (NASDAQ:AMZN) shares down as much as 9 percent in after-hours trading, but they quickly recovered. The Seattle-based company had moved into various industries, including movie productions, and some have speculated it may even develop its own shipping network.
“What fascinates me is that with annual revenues of $63 billion, Amazon is still just 12 to 13 percent of Wal-Mart Stores, Inc. (NYSE:WMT)'s annual sales of $500 billion, and Wal-Mart Stores, Inc. (NYSE:WMT) is thought to represent about 10 percent of total annual retail sale in the US," wrote Brian Gilmartin on Seeking Alpha. "For those who can quickly do the math, that means Amazon is just one to two percent of total retail sales in the US, and thus has plenty of growth ahead of it".