October 25, 2012, 5:19 PM

Amazon grows in Q3, but not as fast

The biggest online retailer ended the quarter with a $244 million loss.

Mark Brohan

Research Director

Lead Photo

For investors and observers used to seeing truly big jumps in sales for Amazon.com Inc. each quarter, earnings for the third quarter were a little more down to earth. The biggest online retailer also continues to spend heavily on acquisitions and growing its infrastructure and ended the quarter with a loss.

Contributing to the loss was a write-off of part of Amazon’s stake in LivingSocial, the Groupon competitor that e-mails discount offers to consumers.

For the third quarter ended Sept. 30, Amazon, No. 1 in the 2012 Internet Retailer Top 500, reported:

  • Total sales increased 26.9% year over year to $13.81 billion from $10.88 billion.
  • North American sales increased year over year 32.9% to $7.88 billion from $5.93 billion. North America accounted for 57.1% of sales in the third quarter.
  • International sales totaled $5.92 billion, up 19.8% from $4.94 billion in the first three quarters of 2011. International accounted for 42.9% of sales in the third quarter.
  • Worldwide sales of books, music and videos increased year over year 10.8% to $4.60 billion from $4.15 billion, while electronics and other merchandise increased 35.5% to $8.55 billion from $6.31 billion.
  • Net loss was $244 million compared with net income of $63 million in the prior year. The net loss included a $169 million write-down of Amazon’s stake in LivingSocial, which Amazon bought a stake of in 2010.
  • Spending on marketing increased 45.9% to $540 million from $370 million in the third quarter of 2011. Marketing expenses accounted for 3.9% of total sales.
  • Spending on technology and content increased 54.7% to $1.19 billion from $769 million in the third quarter of 2011. Technology expenses accounted for 8.6% of net sales.
  • Spending on fulfillment increased 34.8% to $1.51 billion from $1.12 billion in the third quarter of 2011. Fulfillment expenses accounted for 10.9% of net sales.
  • General and administrative spending rose year over year 31.4% to $230 million from $175 million in in the third quarter of 2011. General and administrative spending accounted for 1.7% of net sales.

While many retailers would relish a 27% increase in global sales and a 33% in North American sales, those were smaller increases than Amazon has reported in recent quarters. In the second quarter, Amazon reported a 36% increase in North American sales and 29% growth globally; in the first quarter, growth of 36% and 34%; and in the fourth quarter of 2011 sales increases of 43% and 41%.

“Our approach is to work hard to charge less,” CEO Jeff Bezos says. “Sell devices near breakeven and you can pack a lot of sophisticated hardware into a very low price point." While Amazon devoted a good part of its earnings press release to touting the advantages of its Kindle Fire HD tablet to Apple Inc.’s iPad, the e-retailer does not break out sales of its Kindle devices.

For the first three quarters, Amazon reported:

  • Total sales increased 30.0% year over year to $39.83 billion from $30.65 billion.
  • North American sales increased year over year 34.7% to $22.64 billion from $16.80 billion. North America accounted for 56.8% of sales in the first three quarters of 2012.
  • International net sales totaled $17.19 billion, up 24.2% from $13.84 billion in the first three quarters of 2011. International accounted for 43.2% of sales in the first three quarters of 2012.
  • Worldwide sales of books, music and videos increased year over year 14.1% to $13.43 billion from $11.77 billion, while electronics and other merchandise increased 38.7% to $24.70 billion from $17.80 billion.
  • Net loss was $137 million in the first three quarters of 2012, compared with net income of $454 million in 2011.
  • Spending on marketing increased 50% to $1.56 billion from $1.04 billion in the first three quarters of 2011. Marketing expenses accounted for 3.9% of net sales.
  • Spending on technology and content increased 57.3% to $3.22 billion from $2.05 billion in the first three quarters of 2011. Technology expenses accounted for 8.1% of sales.
  • Spending on fulfillment increased 42.5% to $4.16 billion from $2.92 million in the first three quarters of 2011. Fulfillment expenses accounted for 10.4% of net sales.
  • General and administrative spending rose year over year 39.7% to $662 million from $474 million in in the first three quarters of 2011. General and administrative spending accounted for 1.7% of net sales.

For the fourth quarter Amazon expects sales to range from $20.25 billion to $22.75 billion and operating income to range from a profit of $310 million to a loss of $490 million.

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