Costs hinder Amazon profit

City A.M. Reporter
ONLINE retail outlet Amazon reported a surge in quarterly revenue yesterday, on sales of its Kindle electronic reader and other electronics and forecast far better-than-expected revenue for the current quarter.

The firm’s shares shot up six per cent in after-hours US trading.

The firm benefited from growth in e-commerce, though margins continued to be pressured by heavy spending on distribution, technology and digital content.

The world’s largest web retailer reported a 51 per cent climb in revenue to $9.91bn (£6bn), surpassing Wall Street’s expectations for $9.4bn.

But second-quarter net income came in at $191m, versus $207m in the same period a year earlier.

Operating margin fell to two per cent from 4.1 per cent a year earlier.

“If you look at top-line growth it was extremely strong,” said Dan Geiman, analyst at McAdams Wright Ragen. “At this point it’s a question of how long the company is going to continue to invest at their current levels. Presuming these investments don’t go on forever, earnings should grow going forward.”

Sales in worldwide electronics, which includes sales of the Kindle e-reader, computers, cameras and other consumer electronics, jumped 69 per cent to $5.89bn in the second quarter.

The company is expected to introduce a tablet computer later this year that would compete with Apple’s iPad. Amazon is also investing heavily to build warehouses and distribution to support its main e-commerce business.