News Column

Amazon profits take a Prime cut

July 24, 2014

By Jefferson Graham, @jeffersongraham, USA TODAY shares tumbled Thursday after the e-commerce giant posted a wider-than-expected $126 million loss for its second quarter despite revenue of $19.34 billion.

Amazon CEO Jeff Bezos didn't address the loss in the earnings release, but mentioned new ventures. "We continue working hard on making the Amazon customer experience better and better," he said in a statement.

Shares of Amazon plunged 10%, to $322.50 after-hours. The company announced its results after markets closed.

Forrester analyst Sucharita Mulpuru blamed Amazon's loss solely on its Prime program, which offers two-day free shipments to customers for $99 a year.

"Google, Apple and Facebook invest all the time in innovation, and don't have losses like this," she says. "The big difference is Amazon is spending all this money on shipping those orders."

The costs of free shipping are larger than Amazon expected when it started the program. Amazon, she says, has "created a beast they now have to feed."

Today the online retail giant expands into the cutthroat world of smartphones with its first attempt, Fire.

Last week, it also launched an e-book subscription service, Kindle Unlimited, offering access to 600,000 e-books and audiobooks for $9.99 a month.

Critics were not kind, noting that most current fare is not included with the service. Reviews for the new Fire haven't been raves, either.

The mobile market is huge and continues to grow. This year the total mobile user base of smartphone users will reach 1.76 billion, according to researcher eMarketer. Why Amazon looked to expand to the smartphone: Retail sales on smartphones this year in the United States will top $18.4 billion, up 25.4% from 2012, says researcher eMarketer.

Ted S. Warren, AP

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Source: USA Today

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