Amazon sales fail to Kindle enthusiasm

Profit at the online retailer fell by 58% in the final three months of 2011. Although it could be part of its plan.

by Emma Haslett
Last Updated: 06 Nov 2012
What’s going on at Amazon? Once the uncontested king of online retail, the site has posted disappointing results, with net profit for the three months to the end of December (ie. the most important trading period of the year for retailers) dropping to $177m (£112m) – 58% less than the $416m it made in 2010. That’s a pretty hefty fall from grace for the company that was once expected to take down the world’s book, music and electronics retailers in one fell swoop…

Obviously, it doesn’t look good – but there is an argument that this is all part of Amazon’s dastardly plan. Bear with us: the drop in profits comes despite a 35% increase in sales, to $17.43bn, over the period. That includes a stonking 117% rise in the number of Kindles being sold, with twice as many people in the UK unwrapping e-readers than they did last year. So why has income dropped so much? Because Amazon is selling its Kindles at a loss, hoping that it’ll recoup the money when it comes to selling books later on. All it has to is sit back and wait for the money to come flooding in. Fingers crossed.

Clever, non? But that hasn’t stopped shareholders expressing their disappointment. After it warned it might make a small operating loss in the first quarter of this year, shares in the company dropped by 9% to $177.60 this morning. Although, to be fair, that’s still a pretty healthy valuation. And indeed, while costs have clearly mounted up, there’s little sign that enthusiasm for one-click shopping has waned: on ‘Cyber Monday’, online retailers’ busiest day over the Christmas period, globally, 35 items were ordered every second, while its seven UK fulfilment centres sent out over 2.1m items in one day. That’s a lot of stamps.

Meanwhile, it looks like Facebook, another US tech success story, will finally go public today, valuing itself at somewhere between $75bn (£48bn) and $100bn. Apparently the social network, which is on course to get its billionth user this year, is looking to raise $10bn with the flotation.

It won’t be easy for either the site, or its (ironically) rather secretive founder, Mark Zuckerberg. For a start, it will have to reveal its financials, which it’s shied away from doing in the past. And by going public, it will come under the scrutiny of shareholders for issues like its privacy policies, which have been highly criticised. The worry for Zuckerberg will be that, when the company’s share price is at stake, pressing the ‘Like’ button on innovations like Facebook’s controversial new ‘Timeline’ will be that little bit more difficult...

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