Amazon posts biggest loss since 2012

Amazon has posted its biggest loss in two years, losing $126 million in the latest quarter.

On average, analysts had expected a loss of a mere $66.7 million, according to Bloomberg. The poor year-on-year results come despite worldwide revenue growing by 23 percent, to $19.34 billion.

[Are investors finally losing patience with Amazon?]

Tom Szkutak, Amazon's chief financial officer, said revenue from its Electronics and General Merchandise (EGM) division grew 27 percent to $13.28 billion, according to a transcript from Seeking Alpha. The division now makes up 69 percent of sales worldwide, compared to 66 percent in 2013.

Revenue from its media division also grew, rising 10 percent to $4.84 billion from the same quarter last year. Szkutak said its number of active customer accounts worldwide now exceeds 250 million, while its number of active seller account are more than two million.

Reinvestment

So why's Amazon facing losses? The company has a strategy of reinvesting any profits back into the business, mainly to grow its footprint of data centres and distribution centres, as well as to create its expanding line of hardware.

Sucharita Mulpuru, an analyst with Forrester Research, told Reuters: "As long as there is money to pour into the business, they will be pouring money into the business.

"If you can spend down all your profit and nobody is going to penalise you for it, why show a profit?" she added.

However, stock markets have reacted more negatively to this loss than previously. In the third quarter of 2013, shares fell by a little under 2 percent in after hours trading, after is announced a $7 million year-on-year loss. This time, though, stocks plunged by 11.5 percent overnight.

Nevertheless, Szkutak remained confident in the company's strategy. "We have a long-term view," he told a conference call with reporters, Recode reports. "We’re not trying to optimise for short-term profits," he added.

Things don't look too perky for the next quarter either. The company said it expects net sales to hit between $19.7 billion and $21.5 billion, but ultimately expects to make a loss of between $810 million and $410 million.

If true, it may more than double the company's previous biggest loss of $274 million in Q3 2012. Amazon had been profitable for almost a decade until 2012, when it started posting quarterly losses – a trend that has steadily continued.

Cloud concerns

The Amazon Web Services (AWS) cloud service division is also pulling in less money. Carlos Kirjner, an analyst with Bernstein Research, noted "a material deceleration" in the division under which AWS is listed.

Szkutak explained Amazon has cut the cost of AWS subscriptions between 28 percent and 51 percent during the quarter, depending on the product. While he didn't reference it directly, the company has been engaged in a price war with cloud rivals like Microsoft, Google, and VMware.

He added that AWS's headcount had increased by 1,000 in the quarter, further chomping into its revenues.

This decline is despite usage growth increasing by almost 90 percent year-on-year.

Nevertheless, Szkutak said: "We [Amazon] love that business. It's doing great and we're very pleased to have the opportunity to invest in it."

This article originally appeared at pcpro.co.uk