The retailer said Thursday that it swung to a quarterly loss for the first time in four years. The earnings report, issued after the market closed, immediately sent Amazon shares down 9 percent before recovering.
Amazon lost 60 cents a share in the third quarter, much of it because of a large loss on its investment in the daily deals site Living Social. The consensus estimate was a loss of 8 cents.
It was the first net income loss in 18 quarters. Amazon earned 14 cents a share in the third quarter of 2011.
The company had warned that a loss was coming, saying it expected to lose $50 million to $350 million in the quarter. Its operating loss was $28 million. Profit in the third quarter of 2011 was $79 million.
“Our approach is to work hard to charge less,” said Jeff Bezos, founder and chief executive, in a statement. “Sell devices near break-even and you can pack a lot of sophisticated hardware into a very low price point.”
Earnings disappointments are causing carnage among some of Amazon’s land-based electronics competitors, but Amazon’s many fans will probably be unfazed.
Revenue was $13.8 billion, a little less than the $13.9 billion that analysts expected. Amazon had predicted that revenue would be $12.9 billion to $14.3 billion. In 2011, third-quarter revenue was $10.9 billion.
Amazon’s strategy of selling as cheaply as it can may be tough on its margins but is tougher on competitors. Radio Shack missed its earnings forecasts this week, prompting doubts about its viability. The specialty home appliance and electronics retailer h.h.gregg, which operates 200 stores in the Midwest and Southeast, saw its shares drop 13 percent Thursday. The hard-hit Best Buy fell 10 percent as it warned that third-quarter profit would be “significantly lower.
The third quarter is a mere preamble to the all-important fourth quarter, where Wall Street expects significant revenue growth for Amazon powered by new Kindle tablets and associated downloads. New warehouses are coming, speeding delivery of physical goods to customers that will, in theory and no doubt in practice, encourage them to order more. Amazon, the dominant e-commerce company, has achieved the difficult trick of growing faster than the overall industry.
Still, there are Amazon skeptics. Colin Gillis of BCG Partners published a haiku before the earnings report that went like this: “So much revenue, and with all those shipping costs, so little profit.” What his verse lacked as poetry it made up as cogent criticism.
Amazon’s operating margins have been about 2 percent or less for the last year. “Amazon has the lowest operating margin and the highest valuation in our technology company coverage,” Mr. Gillis wrote, adding that “the company is not likely to achieve material leverage off its revenue growth as costs associated with investments into its digital platforms build.”
Furthermore, “the nature of Amazon’s core business is that of a discount retailer which limits margin upside.” In the second quarter, the analyst noted, Amazon increased revenues by $2.9 billion but income from operations declined by $95 million to $107 million.