Amazon Loss Widens, Marketing Costs Rise 40% and Bezos Keeps Investing
Amazon takes in a lot of money, but the e-commerce giant doesn't bank much money. That was true again, even more than usual, in the second quarter of 2014, Amazon said in its earnings report on Thursday.
Amazon recorded $19.3 billion in revenue for the second quarter, up 23% from the quarter a year ago. However the company actually lost money, and much more than is standard for the notoriously profit-averse company, turning in a second-quarter loss of $126 million, wider than analysts' $66.7 million average estimate and a $7 million loss a year earlier.
Even Wall Street -- which usually stomachs Amazon's nearly nonexistent bottom line, quarter after profit-lean quarter, more or less buying into CEO Jeff Bezos' long-term vision -- had a hard time nodding along to the company's latest turn to the red. Investors dropped Amazon's stock by more than 5% in after-hours trading on Thursday.
Amazon spent much of its its net revenue buying products to sell to people -- including TV shows and movies for its streaming video service -- as well marketing and building out its cloud computing business.
Amazon plans to spend more than $100 million on original video programming in the third quarter of this year, CFO Tom Szkutak said during the company's earnings call Thursday. First opened in 2010, Amazon Studios debuted its first two original series last fall on the company's Prime Instant Video streaming video service and later added six more plus a handful of children's shows. Prime Instant Video is available to people who pay $99 a year for Amazon's Prime subscription service.
While Amazon spent most of its money on acquiring products and media, it also increased its marketing budget by 40% in the second quarter, the same period that the company unveiled its first connected TV device and smartphone (and entered an ugly and public spat with book giant Hachette).
Amazon is notorious for shirking profits in favor of investing in its business, which could help explain why it let its marketing budget balloon. It could also explain the company's foray into selling advertising, which has puzzled many industry experts.
A number of agency executives and analysts have suggested that Amazon got into advertising not to improve its profits but to make money in a relatively low-cost way ... and plow it back into the company.
Amazon doesn't disclose its advertising revenue, but eMarketer estimated it generated $750.9 million in net revenue last year, up from $556 million in 2012. The research firm projects that Amazon's ad revenue will top $1 billion this year. If true, that would be roughly half as much money as Yahoo made from display advertising last year.
Yet advertising is still something of the proverbial rounding error for Amazon. The company buckets advertising along with its cloud computing business Amazon Web Services and co-branded credit card business into a revenue segment called "other." That segment's revenue is considered to be dominated by sales of Amazon Web Services, which powers some of the web's top properties, including Netflix and Pinterest. But even then the segment only accounts for a single-digit percentage of the company's total revenue.
Amazon is a media giant whose media business takes a backseat to its e-commerce business. Consider how much money the company makes from media sales compared to sales of hard goods like electronics and whatever constitutes "other general merchandise" (Amazon doesn't explain the latter).
~ With contributions from Bloomberg News ~