Amazon.com, Inc. (NASDAQ:AMZN) posted strong results for the second quarter but revenue was slightly below the expectations of Canaccord analysts Michael Graham and Maria Ripps, although operating income was in line with the estimates. For the third quarter, Amazon.com, Inc. (NASDAQ:AMZN) has released a cautious revenue guidance of $15.45-17.15 billion versus analyst’s guidance of $17.1 billion and operating results ranging from a loss of $100 million to a profit of $275 million.
International segment a concern
Amazon.com, Inc. (NASDAQ:AMZN) is facing pressure due to sluggish European economy, which is compelling customers to spend less, all over. In the second quarter, sales increased 30 percent in North America, but the International segment of the company could not garner profit and revenue increased only 13 percent.
Further, according to reports, global expansion for Amazon can prove to be challenging. Entering into new countries, Amazon could face major challenges in terms of local ownership, regulatory, tax and other requirements, all of which can affect financial results.
Strategies adopted by Amazon
The online retailer is adopting a strategy of expanding its online video library, where it is spending millions. It is in quest of providing movies, music and other media to the users, which already account for 28 percent of Amazon’s total sales. It has recently inked a deal with Viacom to license television shows like “Dora the Explorer” and “SpongeBob SquarePants.”
Amazon is following a strategy of positioning itself as a broader technology company where customers can get gadgets such as tablets and cloud computing services to corporations and governments. The company is shelling out chunks of dollars on expansion, which affected earnings.
According to analysts, expenses could be more than estimated if management keeps on taking new growth opportunities. Expenses will be high if fundamental value propositions offered by Amazon turn out to be too pricey to support healthy margins.
It is possible that Amazon.com, Inc. (NASDAQ:AMZN) may collect taxes in the future for the United States consumer, which would increase the tax liabilities of the company. There is legislation pending, according to which Amazon will have to collect taxes from end customers. There are deep chances for increase in competition. Big tech companies like Facebook Inc (NASDAQ:FB) and Google Inc (NASDAQ:GOOG) have not yet forayed into online commerce but if they do so, Amazon will be facing tough challenges regarding its growth and profitability.