Amazon reports surprise loss on warehouses, content spending

Digital Content

Sales of digital products are increasing faster than physical items, Szkutak said. Amazon is already making investments for the fourth-quarter holiday shopping season and “revving up video content,” he said.

The company has spent money on getting warehouses closer to customers, something that should reduce shipping costs over time. Shipping as a percentage of revenue was 4.6 percent, the same as the previous year, showing the effort isn’t yet at a scale that is adding to profit. Fulfillment expenses increased 36 percent.

“We’re investing very heavily into the business,” Szkutak said on yesterday’s call. “We’re continuing to add capacity. We’re investing for the large opportunities we have in front of us.”

Fourth Quarter

The investments mean Amazon’s margins have continued to contract. Operating margin narrowed to 0.5 percent from 0.8 percent a year prior. That metric in North America, the company’s most mature market, contracted to 4.3 percent in the second quarter from 4.7 percent a year earlier.

Changes in foreign currency shaved about 3 percent off second-quarter sales and the third-quarter sales forecast, Szkutak said. While the euro increased 1.48 percent against the dollar in the second quarter, a benefit to Amazon, the Japanese yen declined 4.96 percent. About 13 percent of Amazon’s international sales came from Japan in 2012, and in March, the company started selling its 8.9-inch Kindle Fire tablet in the country.

Sales by third parties on the site, which bring in higher margins, made up 40 percent of items sold -- the same percentage as the second quarter last year. The company takes a commission that’s logged almost entirely as profit when consumers purchase from an outside seller, helping the company buffer margin contraction.

www.bloomberg.com

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