Amazon profits take a beating in the third quarter

Amazon profits take a beating in the third quarter

	Published : Wed, 26 Oct 2005 13:05 By : Phil Bateman Print this Story

Profits of the third-quarter at Amazon.com dropped by 44 percent, in spite of the fact that its net sales increased by 27 per cent. The online retailer’s net profits of £17 million for the quarterly ending September was affected by a legal settlement of $40 million on a patent infringement lawsuit with Soverain Software, LLC in August.

The company’s forecast of growth in sales of 13-24% sales for the fourth quarter was way below the 31% recorded in the same period last year. This news sent the share prices of Amazon into a tizzy which shed 8 per cent in after-hours trading.

Total revenue was up by 27 per cent to ₤1.04 billion. The much touted sales of 1.6 million copies of the sixth book of Harry Potter series were, however, no more than a "break even event", according to Amazon.

Major revenue earners were the consumer products and electronic goods which went up by 43% to ₤276.3 million. Books continue to account for a large share of revenues though. Thirty percent of the goods sold on the website were through third-party traders. It is a part of the company's strategy by which it can avoid paying storage and shipping fees and boost its revenue by offering commissions to third parties.

Amazon’s operating profit margin was 6.9 per cent down from 7.4 per cent last year. According to Safa Rashtchy, analyst at Piper Jaffray, the sales could dip further with rising consumer concerns and soaring oil prices on Amazon which would impact its shipping costs.

Amazon had recently launched a programme in the US known as "Amazon Prime", as per which free unlimited delivery is offered to anyone paying a flat fee of $79 a year. It was termed as "one of the most important things we are doing over the long term", by Chairman and Chief Executive Jeff Bezos. He however accepted the fact that it "is expensive in the short term."

According to Chief Financial Officer Tom Szkutak much of the company's investment in technology which was of hiring software personnel was with an intent "to work on the seller platform, making it easier for sellers to sell."