Amazon Investments Lead To Q1 Loss - Twice

Amazon Investments Lead To Q1 Loss

Spending on customer acquisition, retention through Prime
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Amazon.com’s see-saw financials returned to the red in the first quarter as stepped up investments in fulfillment, marketing, technology and content dragged down results.

Seattle – Amazon.com’s see-saw financials returned to the red in the first quarter as stepped up investments in fulfillment, marketing, technology and content dragged down results.

But the smaller than expected loss, the higher than expected revenues, and a first-time reveal of the performance of  its Amazon Web Services (AWS) cloud-computing segment, helped send shares higher in after-market trading.

Net loss was $57 million for the three months ended March 31, compared with net income of $108 million for the first quarter last year.

Worldwide revenue grew 15 percent to $22.7 billion, and was up 22 percent excluding the $1.3 billion impact from unfavorable currency fluctuations.

Interestingly, some 44 percent of unit sales for the quarter were derived from third-party sellers, executives revealed during a conference call.

In North America, revenue grew 24 percent to $13.4 billion, led by sales of electronics and other general merchandise, which rose 31 percent to $10.3 billion, representing 76 percent of North American revenue.

In contrast, sales of media grew 5 percent to nearly $3 billion.

Operating income increased 79 percent to $517 million, and operating margin rose 120 basis points to a slim 3.9 percent.

On the earnings call, Brian Olasvsky, Amazon’s chief financial officer of global consumer business, said the margin gains reflect “a lot of good cost efficiency,” but acknowledged that results were impacted by steep investments, particularly for content and fulfillment to help drive the company’s Prime membership platform.

Chief financial officer Tom Szkutak noted that Amazon has spent about $1.3 billion for Prime content, but suggested it would pay off in the long run. “This video content that we’re spending on is helping us [to acquire] customers who buy consumables from us, they will buy clothing from us, they will buy shoes from us, they will buy electronics, they will buy media items,” he said.

Szkutak said the growth rate for U.S. membership in the 10-year-old Prime program was up 50 percent year-over-year in 2014, “and that’s after a price increase on Prime from $79 to $99.”

He added that “the response has been great” to Prime Now, the one- and two-hour order delivery service now offered in seven cities, which has been fueled by an aggressive fulfillment center build out. Indeed, the count was up to 109 warehouse facilities worldwide at the end of 2014 and growing, Olasvsky said.

Olasvsky is slated to succeed Szkutak as chief financial officer in June. Szkutak is retiring after more than 12 years in that post.

Separately, Amazon for the first time also broke out the results of its $5 billion AWS cloud-computing segment. Revenue grew 49 percent during the quarter to $1.6 billion, and operating income increased 8 percent to $265 million, representing a nearly 17 percent operating margin.

On the product front, it added that its Amazon Echo smart wireless speaker “continues to get smarter as more customers use it and provide feedback.” New features include Pandora integration, home automation, support for sports scores and schedules, traffic reports and route suggestions, and voice control for customers if listening to music via Bluetooth.

The company has also released a limited preview of the speaker’s Alexa SDK (software development kit) to enable developers, content creators, and service providers to build apps and experiences for Echo.

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