The Wall Street Journal
Amazon.com Inc. posted a 16% profit increase as sales continued at breakneck pace, but the Internet retailing giant also showed that it is spending heavily to expand its business.
Meanwhile, the company predicted strong growth for the current quarter, which includes the key holiday shopping season.
The Seattle company will this year open 13 new distribution centers, bringing its total to 52, said its chief financial officer, Tom Szkutak.
The company has also been offering trials of its Prime free-shipping loyalty program to more groups, including new parents and college students.
The expansion is coming at a cost for the e-commerce giant, which saw operating expenses rise 40% in the third quarter from a year earlier, continuing a trend seen in the second quarter.
"This is because of the growth we're seeing in our retail business and our Fulfillment By Amazon business," Mr. Szkutak said, referring to a program where Amazon houses and ships goods for smaller merchants.
Amazon's third-quarter results were driven by a 39% increase in sales to $7.56 billion. Most of the growth came from the company's catch-all electronics and general merchandise category, which increased sales by 68%.
Overall, income for the third quarter was $231 million, or 51 cents a share, compared with $199 million, or 45 cents a share, in the third quarter 2009.
Amazon offered no new details on sales of its Kindle e-reader or sales of digital books. In August, Amazon began shipping new versions of the Kindle, including an entry-level model that retails for $139, its lowest price yet.
The investments spooked some investors. Amazon's shares, which have been trading near all-time highs in recent weeks, fell 3.8% in after-hours trading to $158.65 after trading up 4% to $164.97 at 4 p.m. on the Nasdaq Stock Market.
Some analysts applauded the spending.
"Amazon has been trying to build their fulfillment system in advance of the holidays," said Scott Tilghman, an analyst with Hudson Square Research.
That spending is worthwhile because "Amazon has a pretty sticky customer base," he said. "You get somebody hooked and they love coming back, and you have nice long-term revenue stream."
Amazon also forecast a robust holiday quarter, when U.S. retail is typically at its peak. Amazon said its sales for the current quarter would increase 26% to 40% to between $12 billion and $13.3 billion from a year earlier.
But expenses will rise as well. The company gave a range for operating income that showed it could drop as much as 24% or climb as much as 18% from a year ago.
"Amazon is clearly investing for future growth and sacrificing margins to do that. But the guidance for fourth-quarter revenue implies staggering growth," said Jordan Rohan, an analyst at Stifel, Nicolaus & Co. "Amazon appears to be winding up to deliver the knock-out punch to everybody else in e-commerce," he said.
Research firm eMarketer predicts that U.S. e-commerce sales as a whole will increase 14% in the fourth quarter to $51 billion from a year earlier.
Already e-commerce sales growth is far outpacing the rest of U.S. retail, with the National Retail Federation forecasting U.S. sales across all channels in November and December will increase just 2.3% this year to $447.1 billion.
Meanwhile, the company predicted strong growth for the current quarter, which includes the key holiday shopping season.
The Seattle company will this year open 13 new distribution centers, bringing its total to 52, said its chief financial officer, Tom Szkutak.
The company has also been offering trials of its Prime free-shipping loyalty program to more groups, including new parents and college students.
The expansion is coming at a cost for the e-commerce giant, which saw operating expenses rise 40% in the third quarter from a year earlier, continuing a trend seen in the second quarter.
"This is because of the growth we're seeing in our retail business and our Fulfillment By Amazon business," Mr. Szkutak said, referring to a program where Amazon houses and ships goods for smaller merchants.
Amazon's third-quarter results were driven by a 39% increase in sales to $7.56 billion. Most of the growth came from the company's catch-all electronics and general merchandise category, which increased sales by 68%.
Overall, income for the third quarter was $231 million, or 51 cents a share, compared with $199 million, or 45 cents a share, in the third quarter 2009.
Amazon offered no new details on sales of its Kindle e-reader or sales of digital books. In August, Amazon began shipping new versions of the Kindle, including an entry-level model that retails for $139, its lowest price yet.
The investments spooked some investors. Amazon's shares, which have been trading near all-time highs in recent weeks, fell 3.8% in after-hours trading to $158.65 after trading up 4% to $164.97 at 4 p.m. on the Nasdaq Stock Market.
Some analysts applauded the spending.
"Amazon has been trying to build their fulfillment system in advance of the holidays," said Scott Tilghman, an analyst with Hudson Square Research.
That spending is worthwhile because "Amazon has a pretty sticky customer base," he said. "You get somebody hooked and they love coming back, and you have nice long-term revenue stream."
Amazon also forecast a robust holiday quarter, when U.S. retail is typically at its peak. Amazon said its sales for the current quarter would increase 26% to 40% to between $12 billion and $13.3 billion from a year earlier.
But expenses will rise as well. The company gave a range for operating income that showed it could drop as much as 24% or climb as much as 18% from a year ago.
"Amazon is clearly investing for future growth and sacrificing margins to do that. But the guidance for fourth-quarter revenue implies staggering growth," said Jordan Rohan, an analyst at Stifel, Nicolaus & Co. "Amazon appears to be winding up to deliver the knock-out punch to everybody else in e-commerce," he said.
Research firm eMarketer predicts that U.S. e-commerce sales as a whole will increase 14% in the fourth quarter to $51 billion from a year earlier.
Already e-commerce sales growth is far outpacing the rest of U.S. retail, with the National Retail Federation forecasting U.S. sales across all channels in November and December will increase just 2.3% this year to $447.1 billion.
