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Amazon shares plunge to lowest in six months

26 April 2014

Shares in fell as much as 9.8 per cent to the lowest price in six months following increased spending on new services that limited profit growth last quarter.

Jeff Bezos Chief executive officer Jeff Bezos has continued to pump money in warehouses to speed shipments and programmes, including grocery delivery, for fueling future growth.

Expenses were up 23 per cent during the quarter, which limited profit to 23 cents a share, according to a statement. This was in line with analysts' forecasts but the stock was down 9.4 per cent to $305.46 in New York after trading opened.

Bezos meanwhile has continued to pump cash into expanding Amazon's business at the expense of profits.

The Seattle-based company had been adding new services like a TV set-top box for streaming movies and TV shows.

According to Amazon, spending would not fall anytime soon, and the company forecast for an operating loss of $55 million to $455 million for the current quarter.

Net income stood at $108 million, up from $82 million a year ago, while total operating expenses stood at $19.6 billion, increasing from $15.9 billion a year ago.

Bloomberg quoted Kerry Rice, an analyst at Needham & Co in San Francisco, as saying people who were hoping for the profit kick were going to have to wait a long time.  Rice rates the stock as one to 'hold'.

Amazon had lost almost a quarter of its value this year.

The weakness affected other technology stocks today, with shares of Facebook Inc, Twitter Inc, and LinkedIn Corp all falling over 5 per cent.

Amazon's results scared investor who had been looking forward to returns from the big spending. Meanwhile, Bezos had set the Seattle-based on a course that has seen it emerge as an online seller of everything from books to children's toys.

However, Amazon had long justified heavy spending for entering new markets that would eventually generate returns.

Investors had backed the strategy to the hilt, pricing its stock at almost 500 times earnings, as against the average price-to-earnings ratio of 34.5 for companies in the Nasdaq Composite Index.

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