Amazon Inc. with USD 7 mn loss in Q2 hints serious investment in growth and competitive pricing

Amazon Inc., has been quite in news with its recent foray into the Indian market along with the introduction of its new range of Kindle devices in China, Canada and opening of Amazon app store in over 200 countries. However, it seems that the world’s largest online retailer is stuck between the thin lines of profit and loss. With its Q2 results out for current financial year, Amazon Inc. reported a net loss of $7 million, a 360 degree turnaround from $7 million net profit for the same quarter last year.

The company also reported a 22% hike in Net sales to $15.70 billion compared with $12.83 billion in second quarter 2012, missing out Wall Street’s Q2 forecasts of $15.74 billion. The increase in sales is mainly due to the great response received towards the Kindle devices, which now offers more than 3,50,000 exclusives.

Despite of the struggling quarter, Amazon CEO Jeff Bezos, seems to continue with company’s low operating margin strategy, currently working at only 0.5% operating margin of net sales and having more than 2 million worldwide active seller accounts.

Also, for the next quarter, the revenues for the company are expected to grow between $15.45 billion and $17.15 billion compared with third quarter 2012. However, industry analysts have already predicted the amount to lie somewhere in middle at $16.98 billion. Further, it also expects its operating loss to lie between $440 million and $65 million, much higher than $24.3 million as analysts projected.

The Seattle based retailer has also spent heavily in Q2, 2013 in building out new technologies such as Kindle Fire Tablet range as well as to enter into multi year partnerships with companies such as Viacom and many distribution centres to bring hundreds of TV shows and thousands of TV episodes from Viacom to Prime Instant Video. Amazon also added grocery segment at its online site  for the Seattle and LA customers.

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With financials for Q2,2013 falling  behind the expectations of the analysts for giants like Amazon, ebay and Google, there is not much hope left to see a strong quarter in financial terms. However, with the ongoing price war between world  leaders in online retail such as Amazon and ebay, it seems that negative impacts due to low operating margins will get mitigated by the increased popularity and growing customer base.

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