Amazon Sees Lower Operating Profit this Quarter

Amazon.com Inc projected an unexpected drop in operating profit for the latest quarter, sending shares down more than 4% due to concerns regarding the costs of investments including new warehouses and video content.

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Amazon.com Inc  projected  an unexpected drop in operating profit for the latest  quarter, sending shares down more than 4%  due to concerns regarding the costs of investments including new warehouses and video content.

The first quarter operating income  will be $250 million to $900 million, which is less than a year before even though revenue is predicted to increase as much as 23% to $35.8 billion.

The world’s  biggest online retailer also reported lower than expected 4th quarter revenue and missed Wall Street goals for its strictly watched cloud computing unit.

The company is spending heavily to take greater control of package distribution and to develop  its video service around the globe.  Key to its plan is to attract sign-ups for Amazon Prime, its $99-per-year shopping club, which has directed to users purchasing more goods, more frequently.

“The story is an investment story,” said Amazon Chief Financial Officer Brian Olsavsky on a conference call with reporters, noting “stepped-up” spending levels have continued into 2017.

For many years, Amazon has published roller coaster results as founder and Chief Executive Jeff Bezos give emphasis on building up businesses instead of making an immediate profit. He has ruined profits into new areas that have either built new markets , as with cloud services or its Kindle e-readers – or have floundered, like its Fire Phones.

“Failure and invention are inseparable twins,” Bezos wrote in a letter to shareholders last year.

This has made other  investors anxious and after periods of Amazon’s progress, quick to sell shares when predictions  miss expectations.

 Amazon Chief Financial Officer Brian Olsavsky  stated, “Sales in the first quarter will have a tough comparison to the year prior,  when foreign exchange rates were more favorable and the Feb. 29 leap day gave shoppers an extra 24 hours to spend.”

He added that the  just-ended holiday season was Amazon’s best-ever. It was a heavily promotional period for Amazon, though he did not comment on how discounts compared with prior years.

Net sales for Amazon increased 22.4% to $43.74 billion in the 4th  quarter, compared with the average analyst assessment of $44.68 billion, according to the reports.

Amazon is currently producing television shows for Prime subscribers to watch online. It is creating gadgets with an artificially intelligent assistant, Alexa, so users can purchase goods by voice command. And it is building out a system of trucks, planes and warehouses ,so orders  rushed to Prime members in two days or less, only  a few online retailers can afford to match this convenience.

The company also stated  it was making a big investment in its India operation.

“After these periods of intense investment or spending, then we see acceleration in sales and profitability, or at least historically we have,” said Edward Jones analyst Josh Olson.

Amazon had reported operating income of $1.1 billion for the same period the previous  year.

Amazon Web Services, the company’s fast developing and lucrative cloud business, published a 47% increase  in revenue to $3.54 billion, but fell short of the average analyst estimate of $3.60 billion, according to FactSet. Amazon is the market leader in the space, selling computer services, hosting websites and storing data.

The company stated it would delay its yearly financial filing so it can review its disclosure of net product and service sales, following a letter it received from the U.S. Securities and Exchange Commission. “This does not impact its financial results.”

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