Amazon's Spending Problem Worries Investors

Despite rising sales, Amazon's operating losses in the last quarter were the highest in the company's history.

Brendan McDermid/Reuters
Amazon reported disappointing earnings today and that sent shares plummeting about 12 percent in after-hours trading. Analysts were ready for a loss, expecting to take a hit of $0.74 per share, but Amazon reported a loss of $0.95 per share. Over the same period last year, there was a net loss of $41 million ($0.09 per share), but this quarter saw a more substantial loss of $437 million.
Buzzfeed Business reports part of this loss was due to a "$170 million charge," as per the investor call. Chief financial officer Thomas Szkutak said this charge was "primarily related to the Fire Phone inventory evaluation and supply commitment costs."
In the third quarter of 2013, Amazon had an operating loss of $25 million. This year, it was $544 million— its biggest operating loss ever. Revenue was slightly off, as analysts expected $20.84 billion and Amazon delivered $20.58 billion.
Net sales, however, were up 20 percent year-over-year from $17.09 billion in 2013, though it was still lower than analysts expected.
CEO Jeff Bezos, however, looked to the future instead of the disappointing quarter. "As we get ready for this upcoming holiday season, we are focused on making the customer experience easier and more stress-free than ever," he said in a statement. He promised a load of new price deals for the holidays, as well as new Kindle products.
Despite the massive sales, investors are clearly concerned about the rate at which Amazon spends money. Hart Lambur, a former Goldman Sachs trader and co-founder of Openfolio, a social media platform which specializes in tracking personal investment, told me in a email that "We’ve seen fewer buyers and more sellers of AMZN stock than we usually do. I think Bezo’s strategy of using big spending to fuel growth has reached a tipping point. Our users generally love the Amazon brand, but I think the network is growing impatient with the aggressive expansion strategy."
Looking to the fourth quarter, Amazon expects net sales of between $27.3 billion and $30.3 billion, up 7 to 18 percent from 2013, with an operating loss of as much as $570 million.
While Amazon has reported similar losses in the past, The Wall Street Journal's Spencer Jakab points out that this quarter may have a different effect, "Best-in-class in some fields but certainly not all, Amazon’s fans insist profitability could surge if it decides to sacrifice growth. Recent weakness shows the market is finally holding management’s feet to the fire."