Amazon forecast for holiday season disappoints as investment rises

Thu Oct 27, 2016 8:16pm EDT
 
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By Jeffrey Dastin and Anya George Tharakan

(Reuters) - Amazon.com Inc on Thursday said high spending on warehouses and video production would drag on profits in the holiday quarter, disappointing investors who are weary of roller coaster results from the e-commerce giant and sending its shares down 6 percent.

Amazon is racing to ship packages as quickly as possible by building out its own delivery system. It is making heavy U.S. investments as well as pouring funds into foreign markets, and it also is building out its home electronics and video businesses, aiming to make it difficult for customers to leave.

As a consequence, the Seattle-based company projects operating income in the fourth quarter would range from nothing to $1.25 billion, a wide span that is considerably below Wall Street's $1.62 billion, according to market research firm FactSet StreetAccount.

"Investments are going to be lumpy," Chief Financial Officer Brian Olsavsky said on an analyst call. "The second half of this year looks like a big step up compared to the first half - and it is."

Long known for heavy spending and losses, Amazon has come to turn a profit consistently, partly thanks to selling computer storage and services in the cloud. Companies globally are turning to Amazon, the market leader, and rival Microsoft Corp to host their data. In the just-ended third quarter, Amazon's cloud business grew sales by 55 percent from a year earlier.

But investors are focused on rising costs for the company's retail operation.

Anticipating more shoppers this holiday season, Amazon opened 18 warehouses in the third quarter and another five in the first few weeks of October, Olsavsky said.

Amazon grew its workforce by 38 percent in the third quarter.   Continued...

 
Amazon.com's logo is seen at Amazon Japan's office building in Tokyo, Japan, August 8, 2016. REUTERS/Kim Kyung-Hoon