, Inc. (AMZN): Heavy Spending Plans Lead To Weak Outlook

Updated on, Inc. (NASDAQ:AMZN) has entered into new product segments over the past few weeks, ranging from its Amazon Fire set-top box to delivery services.  This is believed to be why the online retailer will forecast an unexpected second quarter operating loss, says a report from MarketWatch.

Investors disappointed with rising expenses

Investors so far have been more interested in knowing the double-digit revenue growth numbers of the company, however, the forecast took them by surprise. Investors were largely disappointed by the increasing expenses, which were up 23% from last year. First quarter results for, Inc. (NASDAQ:AMZN) were above expectations, as revenue came in at $19.74 billion, an increase of 23% and marginally above the Street’s estimate of $19.43 billion.

However, the cost of sales for, Inc. (NASDAQ:AMZN) continues to rise. In the first quarter, cost of sales came to $14 billion, up from $11.8 billion in the same quarter last year. Shipping cost also surged 31% to $1.8 billion compared to the same period last year. Chief Financial Officer Thomas Szkutak revealed that Amazon is trying to set up its own delivery services to contain its cost. Price cutting for the company’s cloud services business, AWS, is also hurting the profit margins of the company.

Amazon shelling out more money, Inc. (NASDAQ:AMZN) is also expanding into streaming video, launching its Fire TV box. However, the company is facing issues in managing its Fire TV. The company recently entered into a deal with Time Warner Inc (NYSE:TWX)’s HBO network to increase the number of shows available on its streaming video site. Amazon is also shelling out money to expand its network of distribution warehouses, upgrade and expand its cloud-computing effort Amazon Web Services, and add new services, like a food-delivery program.

In order to compensate for the increasing cost, Amazon increased the cost of its Prime unlimited shipping membership in the United States to $99 per year, up almost 25% from $79.

For the most recently completed quarter, Amazon posted earnings of $108 million, or 23 cents per share, in line with analysts’ expectations and above the profit of $82 million during the same quarter last year. So far this year,, Inc. (NASDAQ:AMZN) shares are down over 21%.

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