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Amazon stock falls after disappointing Q2 results

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25 July 2014

Amazon stock headed south after the company delivered disappointing Q2 earnings, including an operating loss guidance of between $410 million and $810 million for Q3, Business Insider reported.

One upbeat development, however, was CFO Tom Szkutak's announcement that Amazon Prime subscriptions were "growing nicely" despite the March price hike from $79 to $99.

According to Szkutak, Amazon added more subscribers in Q2 this year than over last year. He was replying to a question on the earnings call as to whether the increase had had any effect on sign-ups.

He further added that the company planned to spend over $100 million on original video content next quarter.

Amazon's original shows - like "Alpha House" and "Mozart in the Jungle" - were available for free for its Amazon Prime customers, along with a selection of other licensed movies and TV shows.

By continuing to increase its video content, Amazon was making Prime subscriptions more attractive to potential members, and the more people who signed up for Prime, the better it was for Amazon.

In addition to the variety of instant video content, Amazon Prime also gave members access to free, two-day shipping on thousands of items, Amazon's new music streaming service, and a selection of books through its Kindle Lender's Library.

Meanwhile, Amazon blamed the second-quarter losses largely to price competition in its cloud-computing business, Amazon Web Services, The Seattle Times reported.

The business, known as AWS, cut prices from 28 to 51 per cent earlier this year to protect its market-leading position from competition from the likes of well-heeled rivals like Google, IBM and Microsoft.

The cuts spurred AWS usage by 90 per cent, Szkutak said in the conference call with investment analysts. However, it also led to much slower revenue growth than the business had been recording.

North American sales in the ''Other'' category, which included AWS results, were up 38 per cent in the quarter. The year-ago period saw North American ''Other'' sales grow 64 per cent. According to Szkutak, the price cuts were the culprit for the slower growth.

For the quarter, Amazon posted $19.34?billion in revenue, a 23 per cent gain and a loss of $126 million, or 27 cents a share, as against a $7 million loss, or 2 cents a share, in the year-ago period.

Amazon shares were down $37.86 to $320.75 in after-hours trading, declining 10.6 per cent.





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