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Amazon Reports Larger Than Expected 2Q Losses

By Scott Costa – Publisher, tED magazine

I follow a number of companies fairly closely.  For some of them, I like to pay attention to their success stories.  Nike and McDonalds come to mind as being wildly successful when it comes to their branding and how they react to customer wants and needs.

I also follow some companies to see their not-so-successful stories.  J.C. Penney and Best Buy are two that I am watching closely to see how past decisions and indecision will impact them in the next 18 months.

And then there is Amazon.  I follow them because it poses quite a threat to our supply chain. The AmazonSupply.com website provides a strong e-commerce threat to an industry that does not have strong e-commerce websites of its own.  AmazonSupply also stocks approximately 25 times the number of items that an average distributor stocks. And with its strategically placed distribution centers, online orders can be delivered within 48 hours.  And that doesn’t even take into account drones and future innovations that CEO Jeff Bezos hasn’t announced yet. 

We even had author Brad Stone at the NAED National Meeting to talk about his book “The Everything Store: Jeff Bezos and the Age of Amazon” so distributors could learn more about the AmazonSupply strategies.

But one thing is starting to become clear. Amazon needs to start turning a profit.

And it’s not.

Late last week, the Associated Press reported Amazon released “deeper-than-expected” second quarter losses.  Amazon posted a loss of $126 million, or 27 cents per share, compared with $7 million, or 2 cents per share, in the same quarter a year earlier. While Amazon continues to invest huge sums of money in products for the future, this news is still a huge surprise since analysts expected that loss to be between 13 and 15 cents a share, not 27.

Amazon admits it will get worse before it gets better. In the third quarter, since it announced it will lose between $410 and $810 million in the next three months.  Analysts were expecting a $10 million for the third quarter of this year.

Here is the official statement Amazon CEO released about the 2nd quarter earnings report:

“We continue working hard on making the Amazon customer experience better and better. We’ve recently introduced Sunday delivery coverage to 25% of the U.S. population, launched European cross-border Two-Day Delivery for Prime, launched Prime Music with over one million songs, created three original kids TV series, added world-class parental controls to Fire TV with FreeTime, and launched Kindle Unlimited, an eBook subscription service. For our AWS customers we launched Amazon Zocalo, T2 instances, an SSD-backed EBS volume, Amazon Cognito, Amazon Mobile Analytics, and the AWS Mobile SDK, and we substantially reduced prices. And today customers all over the U.S. will begin receiving their new Fire phones — including Firefly, Dynamic Perspective, and one full year of Prime — we can’t wait to get them in customers’ hands.”

While Amazon continues to invest in so many projects (the title of the book does say “Everything Store”) you have to start to wonder if Bezos is starting to stretch Amazon too far.

While the surge in Amazon revenue over the past year is a concern for our supply chain, the continued expenses are starting to be an even bigger concern to investors. On Friday, July 25, the stock lost nearly 10% of its value, dropping more than $35 a share.  And now several analysts are lowering their price target on Amazon stock below $400 a share as a result of the second quarter loss and the projected third quarter loss.  Others are saying investors should take a wait and see approach before buying Amazon stock.

Meanwhile, we will wait and see what Bezos is planning next, not just with AmazonSupply, but as an effort to start turning a profit.  He can’t go on forever taking losses like he just reported or will be reporting three months from now.

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