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April 27, 2011, 12:11 AM EDT
By Joseph Galante
April 27 (Bloomberg) -- Amazon.com Inc., the world’s largest online retailer, fell in late trading after forecasting lower operating profit than analysts predicted, reflecting the rising cost of new warehouses and a cloud computing expansion.
Operating income, which excludes taxes and interest, will be $95 million to $245 million this quarter, the Seattle-based company said yesterday. Analysts surveyed by Bloomberg predicted, on average, operating income of $369.5 million.
Amazon Chief Executive Officer Jeff Bezos is using a swelling cash hoard to promote the Kindle book reader, erect distribution centers and add equipment that delivers computing via the Internet. Capital spending more than doubled to $298 million last quarter, contributing to an operating profit forecast that missed analysts’ projections for a fifth consecutive period.
“Margins are coming under pressure not because they are suffering from competition,” said Sandeep Aggarwal, an analyst at Caris & Co., who recommends buying the stock and doesn’t own it. “It’s because they are making investments. The only thing is investments are lasting longer than people expected.”
Amazon, based in Seattle, fell as much as 9.1 percent to $165.68 in extended trading yesterday after slipping $3.12 to $182.30 on the Nasdaq Stock Market.
Amazon increased capital expenditures for an eighth straight quarter as it carries out plans to build nine warehouses this year.
‘Experimentation’
The company may build more if consumer demand continues to grow at the current pace, Chief Financial Officer Tom Szkutak said on a conference call. Amazon also said it boosted marketing spending for the Kindle.
Operating margins narrowed to 3.3 percent, the lowest in 18 quarters. Net income in the first quarter fell to $201 million, or 44 cents a share. That compared with the 61 cents that analysts predicted. Amazon doesn’t forecast net income.
“Amazon is doing a lot of experimentation right now,” Ken Sena, an analyst at Evercore Partners Inc. in New York, said in an interview on Bloomberg West. “They also have a long term view. It requires patience on the part of investors.”
Even as profitability ebbed, sales outstripped analysts’ predictions. Revenue in the first quarter rose 38 percent to $9.86 billion, beating the $9.54 billion average prediction of analysts in a Bloomberg survey.
“Because the revenue was much stronger than expected investors will accept higher expense growth in the short term as long as the conversion to earnings eventually occurs,” said Fred Moran, an analyst at Benchmark Co.
Dustups With States
As it expands, Amazon is running into disputes with states including California, New York and North Carolina, which want to collect sales tax from it. Amazon has facilities in about 20 states, said Heath Terry, an analyst at Canaccord Genuity, in a report this week. Amazon says it only charges a sales tax in five states.
Amazon may miss out on as much as $520 million in revenue this year if a change in U.S. policy forces it to collect sales taxes, according to data compiled by Bloomberg. Such a law may curb about $7 billion in domestic online purchases.
The company got its start in 1995 as an online bookseller. It has since expanded into thousands of products -- from DVDs to baby clothes. Amazon Web Services, which lets customers rent computer capacity to house data and run computer applications, may one day be as big as the retail business, the company has said.
Amazon may have sold more than 8 million Kindles last year, accounting for about 5 percent of sales, according to Benchmark Co. The device is its best-selling product. Amazon doesn’t disclose Kindle sales figures.
Amazon more than doubled capital expenditures to $979 million last year and will spend about $900 million this year as part of its effort to expand warehouses and data centers, according to January estimates from James Mitchell, an analyst at Goldman Sachs Group Inc.
“Despite the massive amounts they’re investing, they’re doing the right thing long term,” said Gene Munster, an analyst at Piper Jaffray Cos.
--With assistance from Cory Johnson and Emily Chang in San Francisco. Editors: Tom Giles, Jillian Ward
To contact the reporter on this story: Joseph Galante in San Francisco at jgalante3@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
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April 27 (Bloomberg) -- Amazon.com Inc., the world’s largest online retailer, fell in late trading after forecasting lower operating profit than analysts predicted, reflecting the rising cost of new warehouses and a cloud computing expansion.
Operating income, which excludes taxes and interest, will be $95 million to $245 million this quarter, the Seattle-based company said yesterday. Analysts surveyed by Bloomberg predicted, on average, operating income of $369.5 million.
Amazon Chief Executive Officer Jeff Bezos is using a swelling cash hoard to promote the Kindle book reader, erect distribution centers and add equipment that delivers computing via the Internet. Capital spending more than doubled to $298 million last quarter, contributing to an operating profit forecast that missed analysts’ projections for a fifth consecutive period.
“Margins are coming under pressure not because they are suffering from competition,” said Sandeep Aggarwal, an analyst at Caris & Co., who recommends buying the stock and doesn’t own it. “It’s because they are making investments. The only thing is investments are lasting longer than people expected.”
Amazon, based in Seattle, fell as much as 9.1 percent to $165.68 in extended trading yesterday after slipping $3.12 to $182.30 on the Nasdaq Stock Market.
Amazon increased capital expenditures for an eighth straight quarter as it carries out plans to build nine warehouses this year.
‘Experimentation’
The company may build more if consumer demand continues to grow at the current pace, Chief Financial Officer Tom Szkutak said on a conference call. Amazon also said it boosted marketing spending for the Kindle.
Operating margins narrowed to 3.3 percent, the lowest in 18 quarters. Net income in the first quarter fell to $201 million, or 44 cents a share. That compared with the 61 cents that analysts predicted. Amazon doesn’t forecast net income.
“Amazon is doing a lot of experimentation right now,” Ken Sena, an analyst at Evercore Partners Inc. in New York, said in an interview on Bloomberg West. “They also have a long term view. It requires patience on the part of investors.”
Even as profitability ebbed, sales outstripped analysts’ predictions. Revenue in the first quarter rose 38 percent to $9.86 billion, beating the $9.54 billion average prediction of analysts in a Bloomberg survey.
“Because the revenue was much stronger than expected investors will accept higher expense growth in the short term as long as the conversion to earnings eventually occurs,” said Fred Moran, an analyst at Benchmark Co.
Dustups With States
As it expands, Amazon is running into disputes with states including California, New York and North Carolina, which want to collect sales tax from it. Amazon has facilities in about 20 states, said Heath Terry, an analyst at Canaccord Genuity, in a report this week. Amazon says it only charges a sales tax in five states.
Amazon may miss out on as much as $520 million in revenue this year if a change in U.S. policy forces it to collect sales taxes, according to data compiled by Bloomberg. Such a law may curb about $7 billion in domestic online purchases.
The company got its start in 1995 as an online bookseller. It has since expanded into thousands of products -- from DVDs to baby clothes. Amazon Web Services, which lets customers rent computer capacity to house data and run computer applications, may one day be as big as the retail business, the company has said.
Amazon may have sold more than 8 million Kindles last year, accounting for about 5 percent of sales, according to Benchmark Co. The device is its best-selling product. Amazon doesn’t disclose Kindle sales figures.
Amazon more than doubled capital expenditures to $979 million last year and will spend about $900 million this year as part of its effort to expand warehouses and data centers, according to January estimates from James Mitchell, an analyst at Goldman Sachs Group Inc.
“Despite the massive amounts they’re investing, they’re doing the right thing long term,” said Gene Munster, an analyst at Piper Jaffray Cos.
--With assistance from Cory Johnson and Emily Chang in San Francisco. Editors: Tom Giles, Jillian Ward
To contact the reporter on this story: Joseph Galante in San Francisco at jgalante3@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
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