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Amazon announce drop in Q3 profit

Amazon announced a drop in third quarter profit, with shares falling 19 percent in late trading. Their net income dropped 73 percent to $63 million from $231 million, this time last year. Amazon have also said that they may post an operating loss this quarter.

Amazon are searching for higher sales volume, even if it means they will post lower profit margins. This is mirrored with their upcoming Kindle Fire tablet, set to take on the iPad, but at less than half the price.

While it was expected that Amazon would post less than impressive figures for Q3, analysts have raised some concerns, claiming that they have missed investors expectations.

Jeff Bezos, Amazon’s founder and largest shareholder saw his shares drop in value by up to $4.67 billion in value. He holds 88.1 million shares in the company.

$10 loss for Amazon with every Kindle Fire sold

Looking ahead, the picture doesn’t seem to be much brighter, as they said they may lose up to $200 million in Q4. Sales should be in the region of $16.5 billion to $18.7 billion.

Analysts are saying that part of the problem may be down to shipping costs. They have a very popular system entitled ‘Prime’, which means that a customer in the UK can pay £49 a year for unlimited, next day shipping. According to the US figures, the fees raised $360 million, but they spend $918 million on shipping expenses. They have added many new buildings to their enterprise which has cost them a lot of money.

The Kindle Fire is another step in their campaign to expand market share. They currently dominate the e-reader market, but are now going head to head against Apple in the tablet sector. Sales of the product should be very positive, with many analysts claiming they will take the number 2 spot very soon. The Fire however will not help their profit margins, as they are losing $10 for every Kindle Fire sold. Plans are to recoup the money by sales of software from the Amazon store.

Kitguru says: Is Amazon’s strategy too aggressive long term?

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