Higher Spending, LivingSocial Stake Drag Down Amazon Revenue

World's Largest Retailer Misses Estimates for Third Quarter

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Amazon, the world's largest online retailer, reported revenue that missed estimates and posted its first quarterly loss since 2003, dragged down by weakness at LivingSocial.com, which it partly owns.

The third-quarter loss was $274 million, or 60 cents a share, compared with net income of $63 million, or 14 cents a share, a year earlier, the Seattle-based company said in a statement. Sales rose 27% to $13.8 billion, compared with analysts' average estimate of $13.9 billion, according to data compiled by Bloomberg.

Amazon's expanded lineup of Kindle devices to challenge Apple in the tablet market -- expected to reach $63.2 billion this year, according to researcher DisplaySearch -- are facing competition from machines from Microsoft Corp. and Google. Amazon's sales growth slowed to 37% in September from 41% in August, ChannelAdvisor Corp. said earlier this month.

CEO Jeff Bezos is opening 19 fulfillment centers worldwide to offer speedier delivery to customers during the holiday-shopping season, contributing to a 28% increase in operating expenses. Amazon also boosted spending on technology and content as it worked to build out video offerings and expand its line of Kindle tablets.

"Amazon is spending a lot to gain market share," said Sucharita Mulpuru, an analyst at Forrester Research. "They're obviously, as they call it, investing in the business -- everyone else would call it losing money."

Amazon's third-quarter loss includes $169 million, or 37 cents a share, related to its stake in daily-deal website LivingSocial, which lost value as consumers and retailers soured on internet coupons. Amazon invested $175 million in the coupon service in 2010.

"Daily deals have been struggling," said Daniel Kurnos, an analyst at Benchmark Co. in Boca Raton, Florida. "LivingSocial is going to need to reaccelerate their marketing expenses to keep the status quo."

Amazon shares slipped 1.3% to $220 in extended trading following the report. Before the announcement, the stock had lost 2.4% to $222.92 at the close in New York, and has gained 29% so far this year.

On an operating basis, the quarterly loss was $28 million, less than the estimate for a $42.1 million loss.

Amazon last month unveiled a line of bigger, faster and sleeker Kindle e-readers and tablets. The devices range in price from a $69 ad-supported reader to the $599 top-of -the-line Kindle Fire HD with access to 22 million movies, TV shows, songs, apps, games books and magazines.

The company also introduced the Kindle Paperwhite e-book reader with a built-in light that is directed toward the screen, stepping up competition with the Nook reader sold by Barnes & Noble.

--Bloomberg News

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