Amazon.com has announced a drop of almost 58 per cent in its second-quarter earnings for 2006.
Despite the large drop in income, sales jumped 22 per cent, which the company attributed to its focus on providing customers with things attractive offers - such as free shipping deals.
Amazon.com shares fell more than 12 percent in after-hours trading as the online retailer also said it planned to invest heavily in its new toy sales strategy and cut prices on many products. It also projected lower operating income for the year than previously forecast.
The latest spending plans left some wondering when the investments would pay off for investors and not just customers.
"In some respects it's kind of one thing after another," said Dan Geiman, an analyst with McAdams Wright Ragen.
For the three months ended June 30, the Seattle-based company reported a profit of $22 million, or 5 cents per share, compared with earnings of $52 million, or 12 cents per share, in the same period a year earlier.
In a conference call, Chief Financial Officer Tom Szkutak said net income was hurt by approximately $10 million because of the termination of a contract with Toys R Us Inc. Without that cost, Szkutak said the company would have earned about 7 cents per share for the quarter.
Sales for the quarter were $2.14 billion, a 22 percent increase over the $1.75 billion a year earlier. The company said sales would have grown 23 per cent if not for the negative effect of foreign exchange rates.