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Wednesday, October 26, 2011

Amazon and the Underbelly of the Internet Economy

Amazon had a BIG drop in third quarter operating income ... To be exact, a whopping 71% drop over the same time last year!

The drop is mainly due to such business practices as expansion  and new products (Kindle Fire) designed to sell for a loss in order to boost sales of other tangental Amazon products such as e-books, videos and music.

When all the economists and business analysts delved into the reasoning for the Amazon third quarter decline they also found that the Amazon Behemoth had a dark side ... or underbelly if you will.

Ahhh yes, when sales are high the Greed Monster takes over and it pushes and pushes workers and equipment harder and harder until something, or someone, breaks!

What a horrible, stifling, stressful merry-go-round to be caught up in.

Here's more by David Streitfeld in the New York Times:

Amazon Suffers Big Drop in Income

Investors shrugged off Amazon’s warnings this summer that its third quarter would be weak.

Whoops.

Moments after the retailer reported Tuesday that operating income for the quarter had fallen 71 percent from 2010, the high-flying stock sank $25 in after-hours trading. Add the $10 that Amazon had lost before the earnings report, and its market cap shriveled in one day by about $16 billion.

If the past was weak, Amazon was cautious about the future, too. Despite the new Kindle Fire tablet’s selling so well that it was already increasing production, Amazon said it might lose as much as $200 million in the fourth quarter.

“There are times when investors shoot first and ask questions later,” said Scott Devitt, an analyst with Morgan Stanley. He remains a believer. “Does the company still have a strong ability to grow? I think the answer is yes.”

Revenue for the third quarter, which ended Sept. 30, came in largely on target. As customers swarmed to boxes of dried cherries, “Pirates of the Caribbean,” downloads of the Sims video games, diagnostic code readers for cars and the latest “Diary of a Wimpy Kid” — all Amazon best sellers in their categories — sales rose 44 percent to $10.88 billion.

Amazon has been stressing recently, as it has so often over its 16-year history, that it is investing for the future, not seeking immediate profit. With revenue rising about 40 percent each quarter, it simply needs more capacity. In a highly competitive and fragile retailing environment, that is an enviable problem to have.

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