AMAZON.COM (Nasdaq symbol AMZN; www.amazon.com) is a major online retailer.
It gets about 33% of its sales from books, music and videos. Other products, including electronics, computer games and toys, make up the other 67%. Amazon Marketplace lets other companies sell their products through Amazon’s websites.
In the three months ended December 31, 2012, Amazon’s earnings fell 45.2%, to $97.0 million, or $0.21 a share. A year earlier, it earned $177.0 million, or $0.38 a share. The profit decline came despite a 22.0% jump in sales, to $21.3 billion from $17.4 billion.
In the latest quarter, the company spent $1.3 billion on “technology and content,” up 56.0% from $862 million a year earlier. That was a major reason for the lower earnings.
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Tech stocks: Amazon aims to compete with Apple in digital content and cloud computing services
Amazon’s additional spending included investments in new models of its Kindle reader, including the Kindle Fire tablet computer. It also invested in cloud computing services and expanded its digital content business to compete with rival Apple Inc.
In addition, Amazon made big investments to expand its network of warehouses, especially near larger centres. That also weighed on its profits.
The company faces a number of challenges. For example, it must deal with intense competition in the e-book market from big rivals like eBay, Apple, Barnes & Noble and Google. As well, Apple still dominates the tablet market.
In the latest edition of Stock Pickers Digest, we look at whether Amazon’s heavy spending on technology will pay off with a growing clientele, rising sales and higher profits. We conclude with our clear buy-hold-sell advice on the stock.
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