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Bezos spending boosts losses at Amazon

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Bloomberg News
Published:
SAN FRANCISCO — Amazon.com on Thursday reported its biggest quarterly loss since 2012 as Chief Executive Officer Jeff Bezos builds more distribution warehouses, adds grocery deliveries and develops new smartphones and tablets.
The world's largest online retailer posted a second-quarter loss of $126 million, wider than the loss of $7 million a year earlier, even as revenue climbed 23 percent to $19.3 billion, matching analysts' average estimates. Operating expenses increased 24 percent to $19.4 billion.
Bezos's strategy since Amazon's inception has been to invest heavily to expand and earn customer loyalty. While the approach has disrupted industries from bookstores and electronics outlets to providers of Web-computing software, it's been expensive. Amazon began posting quarterly losses in 2012 after being consistently profitable for almost a decade.
“As long as there is money to pour in to the business, they will be pouring money in to the business,” said Sucharita Mulpuru, an analyst at Forrester Research in Cambridge, Massachusetts. “If you can spend down all your profit and nobody is going to penalize you for it, why show a profit?”
Amazon's lack of profits stands in stark contrast to Alibaba Group Holding, which has better margins and is planning an initial public offering soon. The Chinese Web retailer disclosed in a prospectus in May that its profit totaled $2.8 billion for the nine months ended Dec. 31 on revenue of $6.5 billion. Amazon earned $274 million for all of 2013 on sales of $74.5 billion.
Still, shareholders continue to back Bezos's view that big investments are necessary to gain share because Amazon's business opportunity is enormous and will pay off in the long run. Amazon is the second-highest valued company in the Standard & Poor's 500 Index, trading at 573 times earnings and trailing Vertex Pharmaceuticals Inc.
Looking ahead, Amazon projected sales of $19.7 billion to $21.5 billion for the current quarter. Operating losses are projected to be $810 million to $410 million, Amazon said.
Amazon didn't give an update on its dispute with Hachette Book Group over digital-book sales. Both are seeking a greater share of e-book income, and Amazon blocked pre-orders for some of Hachette's books earlier this year, including “The Silkworm,” a new novel by J.K. Rowling, writing under the pseudonym Robert Galbraith.
Bezos is spending to take Amazon further away from its roots as an online seller of books. As it makes that shift, the company is increasingly competing with large technology companies such as Apple, Google, Microsoft and Samsung Electronics.
Amazon is shipping this week its Fire smartphone, a $199 handset that lets users take a picture of a product to find and buy it quickly from Amazon. Reviewers have panned the device, citing a weak battery, lack of applications and the gimmicky nature of its 3-D display.
Still, Bezos has proven with devices such as the Kindle Fire tablet that he'll stick with a product and continue to invest, even if early models don't prove popular.
Amazon's cloud-computing business, Amazon Web Services, is the market leader, used by large companies such as Comcast and General Electric, as well as startups such as Flipboard.
Story tags » RetailAmazon

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