Amazon reports tough quarter despite sales increase

Amazon reported a 20% year-on-year increase in third-quarter sales to $20.58bn, but also posted a net loss of $437m

Amazon headlined third-quarter financial results with a 20% year-on-year increase in sales to $20.58bn.

But the company also posted a net loss of $437m for the period, compared with a net loss of $41m a year ago.

The company said it expected losses to continue in the current quarter, to as much as $570m, which analysts ascribe mainly to a lack of hardware sales and costly acquisitions and investments.

In August, Amazon spent $1bn on the acquisition of game-streaming service Twitch and committed $100m to original television projects.

Analysts said the acquisition of Twitch is aimed at helping Amazon beat video-streaming competitors such as Netflix and Google’s YouTube, but the investment is yet to bring returns.

The company also announced that it will take a $170m charge for unsold Fire Phones and other related costs. Amazon had $83m worth of unsold Fire Phones at the end of the third quarter.

Despite the increase in sales, Amazon's share price fell by 11% to $278.88 in after-hours trading.

The share price was already down 13% since Amazon’s second-quarter results announcement in July, when it also missed targets and raised concerns about spending.

Analysts ascribed this fall mainly to Amazon’s projected revenue growth of 7% to 18% in the current quarter, compared with the fourth quarter of 2013.

The company said it expected net sales of between $27.3bn and $30.3bn for the fourth quarter, below average analysts’ expectations of $30.9bn.

“As we get ready for this upcoming holiday season, we are focused on making the customer experience easier and more stress-free than ever,” said Jeff Bezos, founder and CEO of Amazon.com.

Investors have historically overlooked Amazon’s persistent lack of profit because of year-on-year growth rates of more than 20%, according to the Guardian.

“That kind of takes the top line growth story off the table. And now it's got to deliver on profit margins,” Rob Plaza, senior analyst at Key private bank told the paper.

Amazon chief financial officer Tom Szkutak said a stronger dollar had reduced its fourth-quarter revenue forecast by about 2.5 percentage points.

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