Amazon’s Earnings Decline 35% but Top Forecasts

SEATTLE — Investors in many other companies might panic upon hearing of a 35 percent drop in net income. When Amazon.com reported those results on Thursday, its shares went up almost 15 percent in after-hours trading.
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Jeff Bezos, Amazon’s chief executive, puts investing in company initiatives ahead of profit. 

That is because Amazon, despite the slip in profit, still managed to exceed Wall Street expectations Thursday for the first quarter ended March 31. The Internet retailer, which is based in Seattle, reported net income of $130 million, or 28 cents a share, compared with $201 million, or 44 cents a share, in the same period a year ago — a decline, but not as much as analysts feared.

Amazon’s revenue rose 34 percent to $13.18 billion from $9.86 billion a year ago. Analysts on average were expecting Amazon to report earnings of 7 cents a share and revenue of $12.9 billion for the quarter.

While Amazon told Wall Street analysts that its sales could be $12 billion to $13.4 billion in the quarter, it warned them to expect a big decline in its operating profit for the quarter as it plowed money into businesses that it expects will pay off in the future, like its Kindle Fire device and new centers for shipping goods.

In the quarter, the company reported operating income of $192 million, down from $322 million last year. Analysts, who track that number closely, had been told by Amazon to expect anywhere from an operating loss of $200 million to an operating profit of $100 million as a result of its investments in its business.

Throughout its 15-year history as a public company, Amazon has at times caused fits among analysts with its willingness to invest heavily in initiatives that erode the company’s profits, with the promise that those seeds will eventually turn into a bounty the company can harvest in the years to come. That cycle, though, has repeated itself often enough that Amazon’s skeptics believe it is a permanent state of affairs, indefinitely depressing Amazon profit.

“The assumption is at some point they’re going to work out fulfillment costs and shipping costs and margins will expand,” said Colin Gillis, an analyst at BGC Partners, who said he was skeptical of that view.

The company’s founder and chief executive, Jeff Bezos, has been unapologetic about that approach, saying the company favors serving a huge audience of customers while delivering thin profit margins to investors over producing bigger profits from a smaller audience. Mr. Bezos has also been a deft salesman for Amazon’s vision, which is far more expansive than that of most retailers, encompassing big efforts like Amazon Web Services, a cloud-computing service through which a sizable number of Internet companies run their businesses.

Amazon is in the midst of a big spending spree to position itself for the transition of media from physical to electronic delivery. It has already done well in that regard with books through its Kindle business. During the quarter, revenue from its media business in North America increased 17 percent to $2.2 billion. That was much better than the 8 percent growth it posted in that same business during the holiday quarter.

“One of the big reasons for that growth is because of our digital offerings,” Tom Szkutak, Amazon’s chief financial officer, said in a conference call with members of the press. “Kindle and the total digital business is growing very strong.”

Amazon has not performed as well as competitors like Apple and Netflix in other categories like music and movies.

Last fall, Amazon introduced its $199 Kindle Fire tablet, its first effort to branch out from the e-book reader market with a tablet closer in abilities to Apple’s iPad. The product, which has met with mixed reviews, is believed to be a money-loser for Amazon, at least for now. Amazon has not made it easy for Wall Street to figure out how big an audience it has found for the Kindle Fire, since it does not release sales results for any of its devices.

Amazon also did not provide many clues to how well its Netflix-like video service is doing. That service, Prime Instant Video, offers thousands of television shows and movies at no additional charge to Amazon customers who belong to Amazon Prime, a membership service that costs $79 a year. During the first quarter, the company said nine out of the top 10 best-selling products on Amazon were digital products, including Kindles, Kindle books, movies, music and apps.