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Analyst Chides Amazon over Q3 Performance

Amazon grew third-quarter sales 20% to $20.58 billion, making eBay Marketplace’s 7% growth seem anemic by comparison. But Amazon stayed humble thanks to what the Wall Street Journal called its largest quarterly loss in 14 years. The company reported a net loss of $437 million compared with net loss of $41 million in the same period last year – a whopping 965% decline.

The Journal blamed Amazon’s surge in spending to fuel its expansion strategy, along with a $170 million charge on its Amazon Fire smartphone, “which was released in July but is selling poorly, analysts say.” (Amazon revealed that at the end of Q3, it had approximately $83 million worth of inventory on hand.)

One analyst on the call sounded angry as he chided the company with his question to Amazon Chief Financial Officer Tom Szkutak. Aram Rubinson of Wolfe Research said, “Hoping we can go back to square one here if you don’t mind. Can you tell us or remind us what financial measures are important to you guys and which financial measures do you hold yourselves – and the Board holds you – accountable to, because it’s a little hard to see any of them making positive progress, so I’d just love to get back to basics.”

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The analyst followed up by asking the CFO if Amazon was finding it difficult to recruit employees “as the stock has faded a little bit,” and he asked how Amazon was ensuring it was hiring the best people.

Another analyst took a softer approach, asking what Amazon’s process was for determining whether to proceed or turn back on capital projects when things don’t go as anticipated in areas where there is not a revenue stream.

Szkutak said Amazon tries to learn from everything it does and still thinks it has a lot of opportunities, and said it “needs to be very selective about what opportunities we pursue.”

Don’t expect Wall Street to influence Amazon too much, however. Analysts had asked similarly tough questions of Amazon’s founder and CEO in the early 2000’s – back when Jeff Bezos participated in post-earnings conference calls – and it didn’t change Amazon’s long term approach then.

Szkutak made no apologies, and as usual, he said Amazon is excited about all of the opportunities they had, but he added a new phrase to his repertoire for this week’s earnings call: “our job is to be judicious and selective about what opportunities we pursue,” he said.

In his understated style, that sounded like a major concession – could the company be rethinking its smartphone? Another clue: in its press release and in Szkutak’s presentation, Amazon devoted much space to its hardware – but mostly to its tablets and e-readers, with only a passing mention to its smartphone. (Amazon did issue a press release about its Fire TV set box on Friday.)

When asked about this year’s holiday season, Szkutak said Amazon feels great about the selection it has added and continues to add for the holiday season, and said Amazon has gotten inventory closer to the customers. “We think from an operations standpoint each year we try to get better and we believe we’ll be even better this year than we have had in previous years. And so we are super excited to serve customers.”

When asked if Amazon would consider another rise in price for its Prime membership program next year, Szkutak wouldn’t speculate. He said Prime has good retention and continues to grow – it’s really good for customers, for Amazon, and for shareholders, he said. The biggest return on investment is members buying more, “including and especially physical products.”

Szkutak revealed some of the challenges facing the company:

  • Amazon saw a shift from textbook purchase to textbook rental – “impacting the growth rate a bit the North American media.”
  • Amazon has experienced softer growth rate across a number of geographies. One area was Japan, where it had seen a ramp-up in late Q1 thanks to a consumption tax that took effect there in April. Amazon saw a “pretty sizable drop off” in Japan growth rates from Q1 to Q2 and hasn’t seen Japan growth rates improving since Q2. Nevertheless, it continues to invest in markets including India, Italy, Spain, and China.
  • Amazon had a tougher comp in media in Q3 due to the fact it had some strong titles with heavy discounting in Q3 2013 that boosted sales.

Here are the numbers Szkutak revealed that are of particular interest to online sellers:

  • Worldwide paid unit growth: 21%
  • Active customer accounts: approximately 260 million
  • Worldwide active seller accounts: over 2 million
  • Seller units as a percentage of total paid units (this includes physical and digital): 42%
  • Net addition of fulfillment centers this year: 13
  • Number of sortation centers by the end of the year: 15

Thanks to Amazon’s new sortation centers, it offers same-day delivery in 12 cities and will offer Sunday delivery for approximately 50% of the population.

Amazon also said it is seeing FBA adoption continuing. “If we get further penetrated with sellers adopting Fulfillment by Amazon, we think that’s really good for sellers and for us and for customers over the long term.”

The earnings release is available on the Amazon Investor Relations website, and the full earnings call transcript is available on SeekingAlpha.

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Ina Steiner

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. Send news tips to ina@ecommercebytes.com.


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