Amazon profits down in Q4 2011

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Amazon.com is a US based e-commerce company that has grown from a simple e-book store to an online retail giant. Some may say that it is almost equal to an online version of Wal-Mart. The company has always had a reputation in their lavish spending habits on new investments and growth.

In the 4th quarter of 2011, Amazon.com reported a 57% loss in profits and an increase in revenue by 35% compared to year earlier. Reports show that the operating expenses in the company have risen by 38% as they have started investing in warehouses, technology and its infamous Kindle e-book readers.

Amazon says that the Kindle Fire has reported a rise in sales by 177% compared to the same time last year. Although it seems that the tablet is slow to pay off in profits since they are selling below cost. The Kindle is selling at $199, which is almost half the price of the cheapest version of Apple’s iPad. They have also introduced free shipping for an annual fee of $79 which is also below their operating costs. The company is seriously shrinking its profit margins while concentrating on growth. They have also increased their hiring by 67% compared to last year.

Analysts say that the downfall of revenue in the 4th quarter is due to disappointing sales of Amazon’s core products.?The online retailer reported that their Q4 net income was $177 million, or 38 cents per share, down from $416 million, or 91 cents per share, in 2010.

Revenue came in at $17.43 billion, up 35 percent from the fourth-quarter of 2010.?Following the massive plunge in their Q4 profits, sales are estimated to increase from $12 billion to $13.4 billion.

The investors expected the profits to get affected by this change, but what is hard to accept is the estimated drop in sales.

They are hoping to make up for the losses by expecting an increase in consumer spending on e-books, video, and music sales, which rose in the 4th quarter last year compared to 2010. Analysts are of view that these investments are threatening the short term profits of Amazon but will hopefully pay off as estimated.

Sources: Wall Street Journal, Reuters, Bloomberg

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