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What Amazon’s earnings tell us about its competition

Nova Safo Oct 23, 2014
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What Amazon’s earnings tell us about its competition

Nova Safo Oct 23, 2014
HTML EMBED:
COPY

Amazon announces third quarter results after the closing bell on Thursday, and one thing that analysts may be paying close attention to is Amazon’s investments: how much money Amazon is spending and on what.

“If you traditionally think of Amazon as a retailer, be aware that they’re growing a strong advertising business,” says Colin Gillis, a senior technology analyst and director of research at BGC Financial.

That strong advertising business, Gillis says, is competing with Google. As of 2012, Amazon accounted for about a third of e-commerce searches. Even Google’s Executive Chairman Eric Schmidt says that Amazon is the company’s chief rival in search.

“Google values customers who are searching to purchase products,” Gillis says.

Amazon has captured those customers through aggressive investment into its business. And while Gillis predicts Amazon will announce third quarter revenue of $21 billion, investors will likely not see a penny of that, as Amazon reinvests into more growth.

“The one thing I’d say to look for would be the stock market’s reaction,” says Brad Stone, author of the book, “The Everything Store: Jeff Bezos and the Age of Amazon.”

Stone says investors have historically been patient with Amazon as it increased revenue, but spent that money on itself instead of shareholders. But he says that arrangement is a potential source of vulnerability for the company.

“If investors start to waiver, maybe at some point Amazon needs to start providing returns to shareholders, and that means they can’t invest as much in the new business,” says Stone.

And if Amazon can’t invest, it might have less resources for its battle with Google. That battle has grown from search to a number of other areas, including mobile payments, smartphones, same-day shopping delivery, and cloud services.

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