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Amazon's heavy investing eats into bottom line, shares drop

Date
Amazon continues its rapid pace of investment in new businesses.

Amazon continues its rapid pace of investment in new businesses. Photo: Reuters

Amazon.com posted a much larger than expected loss in the second quarter as it continues its rapid pace of investment in new businesses such as digital content and consumer electronics.

Amazon's stock price has  fallen 10 per cent so far this year, with investors leery of betting on its long-term growth at the expense of little to no profit.

On Thursday, its shares fell another 10 per cent in late trade, after the largest US online retailer posted a loss of US27¢ a share, nearly double Wall Street's average estimate for a loss of US15¢.

The company also forecast an operating loss of between $US810 million ($861 million) and $US410 million for the third quarter ending in September, a sharp increase from a loss of $US25 million a year earlier.

Amazon is investing heavily in new businesses and hardware products, as it prepares to take on major tech rivals from Apple and Google to Netflix.

Chief Financial Officer Tom Szkutak said Amazon had a ''tremendous amount of opportunities'' and its investments were ''certainly impacting short-term results''.

The company is spending more than $US100 million on original video content in the third quarter, a substantial increase compared to last year and the second quarter, Szkutak said.

''We're going to continue to invest on behalf of customers with the understanding that long-term [profit] has to come,'' he said during a call with reporters. ''We'll obviously be looking to get great returns on investor capital and high amounts of cash flow.''

New products and businesses unveiled this year include a subscription book service, new digital content for its Prime online video service, a TV streaming-box and the upcoming Fire smartphone. Amazon is also spending billions of dollars expanding its network of fulfilment centres across the world.

Amazon reported a net loss of $US126 million  in the second quarter, compared to a loss of $US7 million, or US2¢ a share, a year earlier. Total operating expenses rose 24 per cent to $US19.36 billion.

Revenue rose 23 per cent to $US19.34 billion, in line with Wall Street's average prediction of $US19.3 billion, according to Thomson Reuters I/B/E/S.

Amazon's steep price cuts for its cloud computing service made earlier this year limited growth in its ''other'' revenue category, which includes its popular Amazon Web Services division, Szkutak told reporters.

The company's shares fell to $US323 in extended trade, down from a close of $US358.61 on the Nasdaq.

Reuters

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