The company's first-quarter sales increased 23 percent compared to last year, but only represented a modest financial gain in the end, given CEO Jeff Bezos' long-established policy of reinvesting Amazon’s revenue back into the company to keep prices low
Amazon continues to generate enormous revenue even as it posts just modest profits. The online retailer’s sales rose 23 percent year-over-year to $19.74 billion in sales in the first quarter of 2014, beating analyst estimates of $19.43 billion. The company posted a profit of $108 million for the quarter, or 23 cents per share, in line with analyst expectations. Amazon stock was essentially flat in after-hours trading.
CEO Jeff Bezos has a long-established policy of reinvesting Amazon’s massive revenue back into the company to keep consumer prices low and launch new initiatives. Just this quarter the company inked an exclusive deal to bring HBO shows to its Prime video streaming service, launched the Fire TV set-top box to compete with Roku and Apple TV and introduced a Dash, a shopping device that people can speak into to order groceries without visiting Amazon’s website. These types of initiatives, along with huge shipping costs, led Amazon to operate on a razor-thin 0.7% operating margin in the first quarter, down from a 1.1% margin a year ago.
In a conference call following the earnings report, analysts honed in on Amazon’s ballooning expenses internationally. The company had a $60 million loss for the quarter in foreign markets, compared to $562 million profit in North America. Chief Financial Officer Tom Szkutak attributed some of the gap to the fact that international customers are still buying media in physical formats in greater percentages than U.S. customers, which forces Amazon to spend more money on storage and shipping. “We’re just not where we are in North America in many different categories,” he said of the physical-to-digital transition.
Rising costs for Amazon’s many ambitions led the company to raise the price of its Prime subscription service by $20 to $99 per year. The change occurred late in the quarter so it likely didn’t have a huge effect on the company’s earnings. Szkutak said Prime was continuing to see week-over-week subscriber growth despite the price hike. But the Prime increase isn’t going to swing Amazon to huge profits anytime soon—the company projects that it will post an operating loss between $55 million and $455 million in the second quarter. Despite the retailer’s growing clout in a variety of sectors, the day when Bezos attempts to turn his massive company into a regularly profitable business still seems a long way off.