Amazon profits dropped sharply in the quarter ending June in spite of a significant increase in sales. The company invested a great deal of money in its drive to become a global source for all types of goods, including food.
Amazon profits for the three months ending June 30th were 77% down at just $197 million. Expenses, on the other hand, were up 28% over the same period last year at $37.3 billion. Nevertheless, Amazon share prices rise significantly.
Cash was spent on overseas expansion and on introducing new services and products. Amazon has been spending money on increased warehousing, physical book stores and developing its business in Asia. It has also invested a great deal on infrastructure and engineering, including personnel increases.
Competing with Netflix with the Amazon Prime video streaming service did not come cheap. It has also been developing new technology such as its Echo suite of products.
Then there is the Whole Foods purchase. The supermarket chain will enable Amazon to jump straight into the food retail market. Amazon did not include the June announcement in the second quarter expenses. However, Amazon shares rose by 8% because of it. The cost to Amazon for Whole Foods will be in the region of $13.7 billion. The announcement of second-quarter figures resulted in a 3% drop in Amazon after-hours share prices.
It’s a well-known fact that Amazon tends to put development and expansion before profits. That said, its second quarter retail sales jumped by 27% in North America and by 17% in the rest of the world. Sales for the quarter totaled $33.9 billion. Its data storage cloud business brought in an additional $4.1 billion, a 42% increase year on year. The company also saw a 50% increase in Amazon Prime subscriptions.
According to Amazon’s chief financial officer, Brian Olsavsky, Amazon is currently focusing on increasing its ‘Fulfillment by Amazon’ capacity. This is the company’s delivery service available to third-party vendors. The expansion will involve further expenditure. So too will its expanding worldwide web services – particularly in view of competition from Google and Microsoft. These are big businesses to compete against in their own specialist fields of activity.
Although Amazon profits dropped due to increased expenditure, the firm is confident it is money well spent. Development and expansion today leads to increased income tomorrow. This has generally been Amazon’s ethos, and it has done pretty well with it so far.
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