Update: Amazon builds sales, but quarterly losses pile up

The company lost $437M this quarter, as it prepares for the holiday season

Amazon.com continued to increase its sales last quarter but losses also mounted, to the growing consternation of investors.

Amazon's overall sales were up 20 percent in the third quarter, amounting to $20.58 billion for the three months ended Sept. 30, the company said Thursday.

At the same time, however, Amazon's losses reached $437 million, compared to a loss of $41 million in the same period last year.

That led investors to push its share price lower. Amazon's shares were selling for $279  at the time of this report, down 11 percent from the close of regular trading.

One culprit for the higher-than expected loss was the Amazon Fire phone. It didn't sell as well as expected and contributed heavily to a $170 million write-off the company had to make this quarter, CFO Thomas Szkutak revealed in a conference call.

A switch among students from buying to renting textbooks also contributed to the wider loss.

CEO Jeff Bezos has long argued that investing for growth is the right strategy for Amazon. The company also made a big acquisition this year, picking up the gaming site Twitch for almost $1 billion, and it has released new tablets at a rapid clip.

Szkutak reiterated the company's strategy in the conference call. Amazon's goal is to maximize its free cash flow over the long term rather than concente on profit margins, he said.

"We've been, for several years now, in an investment mode, because of the opportunities we've had in front of us," Szkutak said. "We know we must be selective in which opportunities we pursue, but we've been encouraged by the opportunities we have."

Just hours before it released its earnings report, Amazon updated its Kindle Voyage book reader, making it lighter and faster. The Kindle Fire tablet got an update recently, and the company released a new version of that product for kids. Its game studio launched a slew of updated titles for the Fire tablet, including "Til Morning's Light," "CreepStorm," and "Tales From Deep Space."

In a move to tap into the growing mobile payments industry, Amazon launched Local Register, a mobile app and credit card reader. It also ventured into three-dimensional printing with an online marketplace that initially has about 200 schematics for printing online objects. Along with testing drones for product delivery, they are signs that Amazon is investing to secure its position in the future. The question is how patient its investors will be while the losses pile up.

Amazon doesn't break out figures for Amazon Web Services, though it claimed "usage growth" of close to 90 percent from a year earlier.

"The [AWS] team is doing a fantastic job, not only in serving customers, but also in launching many new features and services," Szkutak said.

Typically, Amazon includes the AWS results in the category of U.S. supplemental revenue. That category generated $1.34 billion in the quarter, up 40 percent from the same quarter a year earlier. It includes revenue from advertising services and Amazon-branded credit cards, but AWS makes up the lion's share.

One analyst asked if Amazon will continue to sell hardware, given the lackluster sales of the Fire phone and some other less-than-enthusiastically-received products.

"I can't speculate what we'll do going forward. But we just launched a number of new tablets and eReaders we are excited about, at some really great price points. We're excited to have these offerings for customers," Szkutak said.

Copyright © 2014 IDG Communications, Inc.

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