Amazon profit margin rises

Amazon.com has reported quarterly results that show the growth of new businesses is boosting the profit margins of the world's largest Internet retailer.

The company's product revenue, which includes its traditional online retail business, grew 25 per cent to $10.79 billion. Services revenue, which includes its online marketplace for third-party merchants and its cloud computing business Amazon Web Services, surged 57 per cent to $2.04 billion.

These newer businesses are more profitable than Amazon's retail operations, so as they become a larger part of the company, overall profit margins grow.

Amazon's gross profit margin was 26.1 per cent in the second quarter, up from 24.1 per cent a year earlier.

Amazon chief financial officer Tom Szkutak told analysts on a conference call that the company's third-party marketplace business accounted for 40 per cent of units sold during the second-quarter, up from 36 per cent earlier.That helped improve gross profit margins, he said.

Second-quarter net income fell sharply from last year and the company forecast a possible loss in the current quarter as it invests in warehouses and overseas expansion, and on software platforms and products.

Second-quarter international sales rose 28 per cent, excluding currency fluctuations. That was down from 36 per cent growth in the second quarter of 2011. International media revenue grew 12 per cent, Amazon said. Second-quarter revenue was $12.83 billion, up 29 per cent from a year earlier.

The company forecast third-quarter revenue of $12.9 billion to $14.3 billion.

Second-quarter net income was $7 million, or one cent per share, versus $191 million, or 41 cents a share, a year earlier, the company said.

Amazon also forecast a third-quarter operating loss of $50 million to $350 million. Excluding stock-based compensation and other items, the forecast was between a loss of $75 million and a profit of $225 million.

Amazon is in the midst of a massive investment phase that has hammered earnings over the past year. The company is spending heavily on overseas expansion and building out its network of storage and shipping warehouses.It's also developing a mobile platform that includes the Kindle Fire tablet computer and possibly other mobile gadgets such as a smartphone.

The company has been investing a lot in digital content to deliver over this platform, including movies, TV shows, music, apps and games. This has intensified competition with Apple, Google and even Microsoft and Facebook.

During a conference call Mr Szkutak said operating expenses are growing faster than revenue and suggested that this may continue.

"We're investing a lot because of the opportunities we see," the he said.

Much of that investment is going into the company's new warehouses; it plans to open 18 this year, possibly more.The company also plans to keep investing a lot in video content and technology infrastructure to support its cloud computing and online retail businesses, the CFO said.

But he quelled speculation that Amazon was planning a big rollout of same-day delivery services. Amazon does not see "a way to offer same-day delivery on a broad scale economically," he said.

Shares of the company rose 1.1 per cent to $222.42 in after-hours trading from the NYSE close of $220.01, after first dipping 2.3 per cent.

Reuters