Amazon Posts Loss on Higher Spending, LivingSocial Stake

Amazon.com Inc. (AMZN), the world’s largest online retailer, reported revenue that missed analysts’ estimates and posted the first quarterly net loss since 2003, hurt by higher expenses and its investment in LivingSocial.com.
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Amazon.com parcels. Photographer; Kostas Tsironis/Bloomberg
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The livingsocial.com website is displayed for a photograph in New York. Photographer: Scott Eells/Bloomberg
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The third-quarter net loss was $274 million, or 60 cents a share, compared with net income of $63 million, or 14 cents, a year earlier, the Seattle-based company said in a statement. Sales rose 27 percent to $13.8 billion, compared with the $13.9 billion average analyst projection compiled by Bloomberg.
Chief Executive Officer Jeff Bezos is opening 19 fulfillment centers worldwide to offer speedier delivery to customers during the holiday shopping season, contributing to a 28 percent 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 Inc. (FORR) “They’re obviously, as they call it, investing in the business — everyone else would call it losing money.”
Amazon shares slipped 1.3 percent to $220 in extended trading following the report. Before the announcement, the stock had lost 2.4 percent to $222.92 at the close in New York, and has gained 29 percent so far this year.
LivingSocial Loss
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 has 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.”
On an operating basis, Amazon’s third-quarter loss was $28 million, less than the average analysts’ estimate of a $42.1 million loss.
Fourth-quarter operating income will range from a loss of $490 million to a profit of $310 million, compared with analysts’ projections for $354.1 million in profit. Sales will be $20.3 billion to $22.8 billion, while the average estimate was $22.8 billion.
Amazon has broadened its lineup of Kindle devices to challenge Apple Inc. in the tablet market, which is expected to reach $63.2 billion this year, according to researcher DisplaySearch. Kindle readers and tablets are facing escalating competition as Microsoft Corp. and Google Inc. roll out new machines.
Last month, Amazon unveiled a new 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 Inc. (BKS)