Amazon’s Q3 financials: net sales up 20%, operating loss half a billion higher

Amazon’s Q3 financials: net sales up 20%, operating loss half a billion higher

I think you know the basic story by now.

Amazon is selling more…a lot more.

Amazon is losing more…a lot, lot, lot more.

However…they gained more in sales than they lost in, well, losses.

You can see numbers in this

press release

and you can listen to the webcast here:

http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=97664&eventID=5171470

Compared to the same quarter last year:

“Net sales increased 20% to $20.58 billion in the third quarter, compared with $17.09 billion in third quarter 2013.”

“Operating loss was $544 million in the third quarter, compared with operating loss of $25 million in third quarter 2013.”

So, net sales were up $3.49 billion, while the operating loss was $.519 billion.

Looking at this, it looks good…but it’s scary to see losses more than twenty times higher.

Looking through the slides, it just looks bad…the “loss” slides are so dramatic!

During the question and answer session, Amazon sounded…resigned to what was happening. The investors asking the questions sounded…concerned. They were looking for something to explain the slide, but to me, not expecting to find it.

The lack of media sales growth seemed to be a particular concern. Amazon was suggesting that a shift from purchasing to renting (textbooks), for example, was a contributing factor. Give me an argument for why that is going to reverse going forward?

I’m listening to the Q&A as I write this, and sometimes, the Amazon representative just seems to trail off when answering a question.

Amazon is undeniably investing a lot of money…launching hardware, licensing content, creating their own content. Is that going to slow down, though? Is it becoming the expected thing for Amazon, and if they stop doing it, will that take some of the shine off the company for the average consumer?

I want to be clear, I’m not especially concerned about Amazon from this report…it’s kind of more of the same, even if the losses are up so much.

They are smart, and I think very focused. I expect Amazon to be around twenty years from now, certainly.

I have more concern with them losing customer goodwill…that’s what they need to have to continue to succeed.

In terms of the highlights in the press release, this stood out to me:

“Amazon Fire TV is now the best-selling streaming box on Amazon for the U.S., U.K., and Germany”

The

Amazon Fire TV (at AmazonSmile: benefit a non-profit of your choice by shopping*)

is a good device: I use mine every day.

The

Kindle Voyage (at AmazonSmile: benefit a non-profit of your choice by shopping*)

looks to be a hit (they are having to restrict buying) and I think the new

7th generation entry level Kindle: “Mindle Touch” (at AmazonSmile: benefit a non-profit of your choice by shopping*)

will also do well.

The

Amazon Fire Phone (at AmazonSmile: benefit a non-profit of your choice by shopping*)

?

Not so much.

I have one, and I see them advertising them a lot…but it may be a couple of years before we know if it will really get a solid slice of the market.

Amazon mentioned they had $83 million in Fire Phone inventory on hand…that’s not where they want to be. They are giving them away right now (with a plan)…and it sounds like people still aren’t going for it.

The Fire tablets, though, appear to be solid sellers.

All of this is only a small part of Amazon’s business (web services and fulfillment for others are two significant segments)…but a very large part of the public perception of the company.

They did confirm what I’ve been saying…content can be sold at a loss if it makes people Prime members, because Prime members buy what I call “diapers and windshield wipers”…the higher margin physical goods.

Update:

Lots of stories on this, generally negative towards Amazon (with a few exceptions). Here’s a search at Seeking Alpha:

http://seekingalpha.com/search/?q=amazon&avoid_symbol=&sort=date%3Ad&cx=018269914407235029540%3Acdhc2yeo2ko&cof=FORID%3A11%3BNB%3A1&goto_search_tab=

Notably, Seeking Alpha also has a transcript of the call…so you don’t need to listen to it to get the literal content (although the emotional content from hearing it is still interesting:

http://seekingalpha.com/article/2592525-amazon-com-amzn-q3-2014-results-earnings-call-transcript?all=true&find=amazon

What do you think of this financial report, and of Amazon’s future in general? Will the stock tank (temporarily) based on these figures? Does Amazon need to change something significant, or is this all according to plan? Feel free to tell me and my readers what you think by commenting on this post.

 Join hundreds of readers and try the free ILMK magazine at Flipboard!

* I am linking to the same thing at the regular Amazon site, and at AmazonSmile. When you shop at AmazonSmile, half a percent of your purchase price on eligible items goes to a non-profit you choose. It will feel just like shopping at Amazon: you’ll be using your same account. The one thing for you that is different is that you pick a non-profit the first time you go (which you can change whenever you want)…and the good feeling you’ll get. :) Shop ’til you help! :) 

This post by Bufo Calvin originally appeared in the I Love My Kindle blog. To support this or other blogs/organizations, buy  Amazon Gift Cards from a link on the site, then use those to buy your items. There will be no cost to you, and a benefit to them.

10 Responses to “Amazon’s Q3 financials: net sales up 20%, operating loss half a billion higher”

  1. Edward Boyhan Says:

    About what I expected. One obviously disgusted analyst asked (I’m paraphrasing here) — so let’s get back to basics just what financial metrics matter to Amazon; what do you track on? The answer was growing free cash flow over the long term, and return on investment (which was 6% — up from 3% a year ago). Implied that all else doesn’t matter very much.

    In the pantheon of Amazon stakeholders, it’s pretty clear that stockholders are at the bottom of the list. Given that, another analyst wondered whether that was impacting their ability to attract top talent? Not so far.

    The phone was hardly mentioned save that they were taking a $170 million write down. Excluding that unexpected charge, the reported loss would have been in line with Street expectations.

    • Bufo Calvin Says:

      Thanks for writing, Edward!

      I agree that stockholders are not the most influential group for Amazon…but I do think employees are way up there. Well, let me amend that: top employees are (we’ve heard about issues with, for example, warehouse workers). If their compensation is strongly affected by negative stock impact (which hasn’t really happened yet), then that might be a factor. Amazon could, though, shift compensation methods if that was the case.

  2. hsextant Says:

    Santos sounds especially grim:

    http://seekingalpha.com/article/2594095-part-of-amazon-coms-core-is-dying?uprof=82&dr=1

    Regarding the phone, I wonder for a tech unsavvy person such as myself if the Fire phone is not one hell of a deal. Every time I look into getting a smart phone, the technical brouhaha and byzantine plan pricing soon exceeds my patience and I ask how will I get my money’s worth and the answer is I won’t.

    Alas, if I buy a Fire phone, am I only adding to Amazon’s financial woes? I don’t own any stock but I have a young fortune invested in Kindle that I would like to see survive.

    Having a subscription to Seeking Alpha should come with an Rx for Prozac and perhaps Viagra for the serious reader. Being bombarded with 12 emails of gloom and doom over one company has to extract a cost on one’s psyche.

    • Bufo Calvin Says:

      Thanks for writing, hxestant!

      It’s a good phone for the non-techie. I use a SmartPhone a lot, and this is a serviceable SmartPhone. I’m wondering what they are going to do with it, though. I certainly hope I don’t get stranded in some way. I can see it going two ways: they figure out some big update or other related services which makes it suddenly attractive; or they compensate buyers in some way (a buyback program?) and kill it.

      I’m fairly new to Seeking Alpha, but I find the articles often well-written and insightful. I think that that particular one may be missing the transitional part of what’s happening…I’ll comment more on that when I reply to Tom.🙂

  3. Tom Semple Says:

    It’s probably not a significant factor in terms of the balance sheet, but it would have been interesting to get some details about how Kindle Unlimited is doing.

    • Bufo Calvin Says:

      Thanks for writing, Tom!

      I wondered that, too! I’m certainly seeing KU impacting sales of books…both in bestsellers and in what I can personally. I suspect that, while not saying it explicitly, that’s part of the trend to “rentals” they were discussing. It’s not exactly a rental, but one could put it in that category. I think KU may turn out to be a hugely positive element for Amazon…but it wouldn’t be that at first. I’m assuming that licensing for the larger publishers is not the way it is for indies…that Amazon has an initial investment, and that would have (in a small way) impacted the bottom line negatively in this report.

      I think they need to tie Prime into KU in some way (while still leaving a stand-alone plan…which they should also offer for Prime video and Prime music…and eventually, Prime games when it exists) to really see the benefits.

  4. Man in the Middle Says:

    The bigger loss came as a surprise to me, as our family is certainly still buying as much as ever from Amazon – so much so that our UPS driver once tried to deliver a neighbor’s package to us because our house is where he usually delivers on our street.

    That said, I’m not surprised by the failure of the Fire Phone to set the world ablaze. Having just last summer cancelled our AT&T cell service when an update of theirs bricked our iPhone 4 and neither they nor Apple could fix it, there’s little chance of my buying a product that only works with AT&T.

    • Bufo Calvin Says:

      Thanks for writing, Man!

      If those purchases you are making are coming at a higher cost to Amazon, that would show the sort of thing we saw in this report…

      I don’t think Amazon can open up the Fire Phone to other carriers for the first year…but I’m sure they will when they can…if it’s still around.

  5. rogerknights Says:

    Radio Shack is shrinking. Other big retailers are in trouble and shrinking too (Sears, K-Mart, JC Penney). Part of that is attributable to Amazon’s low prices. When they’re gone, Amazon will have more sales–and more pricing power. That may be why Amazon is sticking with its low prices and taking losses–for now.

    • Bufo Calvin Says:

      Thanks for writing, Roger!

      Years ago, I remember Jeff Bezos explaining take losses by saying something like, “Market share will never be cheaper than it is now.” At the time, we all thought Amazon’s CEO was just talking about the internet…that might not have been the case.

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