Amazon has developed a kind of parlor trick of not making a profit, despite the fact that it has gobs of revenue coming in.
The online retailing giant announced Thursday that its revenues soared to $20 billion in the second quarter. But high costs pushed it into the red. It lost $126 million.
“That in and of itself is quite a feat – to be able to crank up the spending machine to that degree,” says Colin Gillis, senior technology analyst with BGC Financial.
Gillis says Amazon invests aggressively in many areas: E-commerce, its own smartphone, TV shows and web services like document sharing.
But Gillis and others wonder when Amazon, which has snubbed short-term profitability as a longer-term business strategy, is going to shift gears.
“If they shouldn’t be valued based on profitability, what should they be valued based on?” asks Sucharita Mulpuru, a retail analyst at Forrester Research.
Mulpuru points out that other tech giants like Google and Facebook do turn in big profits even as they spend on innovation. Just yesterday, Facebook announced a second quarter profit of $800 million.
Mulpuru says Amazon is frittering money away with steep subsidies of shipping costs for stuff customers buy from its website.
But RJ Hottovy, an e-commerce analyst with Morningstar, says Amazon is building a lot of brand loyalty along the way.
“Really it’s important to lock in those consumers and give them less of a reason to shop elsewhere,” he notes.
Hottovy thinks Amazon’s strategy will eventually pay off. But for now, the company is projecting up to $800 million in operating losses for the current quarter.
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