Amazon.com 3Q Net Up 16% On Sales Jump; Spending Still Strong

Amazon.com Inc.’s (AMZN) third-quarter earnings rose 16% as revenue continued to surge at the No. 1 Internet retailer by sales, but investors were unsettled because the company raised the possibility that operating income might decline in the current quarter. Seattle-based Amazon said operating expenses jumped 40% in the third quarter, in part because it was spending on a previously planned infrastructure expansion that includes 13 new fulfillment centers.

During a conference call with analysts, Chief Financial Officer Tom Szkutak said the company had completed 10 of the centers and is planning to open more before the peak holiday shopping season. Amazon will continue to build infrastructure if it sees more growth, Szkutak said.

The earnings come as Amazon continues to capture a disproportionate share of growth in the online retail market, which is seen rising 13% this year to $152 billion, according to eMarketer, a research group. To take advantage of that opportunity, Amazon is continuing to spend on distribution centers and other investments. The potential for higher costs weighed on Amazon stock, which is up 23% so far this year. In after-hours trading, shares were down 3.8% at $158.70. Still, Amazon saw sales jump, particularly in its catch-all categaory, electronics and other general merchandise, which rose 68%. Traditional media was up 14%, a slower pace than in the second quarter. Some of those sales had been driven by discounting, because the company undercut competition with low prices in order to grab market share.

The company has also widened its offerings, including a growing number of third-party merchants selling on the site. Amazon’s Kindle e-book reader and the company’s digital book business have encountered increasing competition. The Kindle has also contributed to Amazon’s rising costs because the company has boosted spending to promote the Kindle in the face of Apple Inc.’s (AAPL) iPad touchscreen tablet. On Thursday, the company said its latest e-reader models are the fastest-selling Kindles so far, but it remained characteristically tight-lipped on specific sales figures. In the latest period, Amazon posted a profit of $231 million, or 51 cents a share, from $199 million, or 45 cents a share, a year earlier.

Analysts predicted 48 cents. Net sales jumped 39% to $7.56 billion, which would have been a point higher excluding foreign-exchange effects. In July, the company predicted $6.9 billion to $7.63 billion. Gross margin inched higher to 23.5% from 23.4%. The company projected fourth-quarter revenue of $12 billion to $13.3 billion, compared with analysts’ average estimate of $12.3 billion, according to Thomson Reuters. The company also offered a wide range for its operating income, which it said could decline as much as 24% or rise as much as 18%.

Source: Dow Jones Newswires