Amazon profit slumps 77% as costs surge, shares fall

Amazon.com Inc. reported on Thursday a 77 per cent slump in quarterly income and forecast a potential operating loss in the current quarter, as the company invests heavily in video content and in fast-growing economies such as India.

The company's shares, already up nearly 41 per cent this year, were down threeper cent at $1,014.75 US in after-hours trading.

The world's largest online retailer forecast an operating income of $300 million US to a loss of $400 million US for the current quarter. Analysts had expected operating income in the third quarter of $931 million US, according to FactSet StreetAccount.

The news appeared to be an old refrain on Wall Street: While Amazon consistently posts blockbuster sales growth, its profit has often not kept pace due to thin retail margins and high investment to expand the company's already vast reach in the U.S. economy.

From its origins as an online bookseller, Amazon has jumped into areas that historically had barriers to e-commerce, from apparel to appliances. The spectreof Amazon's disruption now hangs over a dizzying array of industries.

Yet this has come at a cost. Amazon said operating expenses rose 28.2 per cent to $37.33 billion US in the second quarter ended June 30.

"Every category of operating expense was up," said Michael Pachter, analyst at Wedbush Securities, citing higher marketing, content and fulfillment costs.

Amazon chief financial officer Brian Olsavsky said on a call with reporters, "Our video content spend will continue to grow, both sequentially and quarter over quarter," adding that this would help encourage shoppers to sign up for Amazon's shopping club Prime.

The club, which offers fast shipping and video streaming for $99 US per year in the United States, encourages shoppers to buy more goods, more often.

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Olsavsky declined to discuss detail of the company's strategy for upscale grocer Whole Foods Market Inc, which Amazon said last month it planned to buy for $13.7 billion US.

However, he said, "We really think it will be a big boost for us as we expand our grocery and consumables offering."

Amazon said net income fell to $197 million US.or 40 cents per share, from $857 million US, or $1.78 per share, a year earlier.

Net sales rose 24.8 per cent to $37.96 billion US.

Analysts had expected a profit of $1.42 per share and revenue of $37.18 billion US,according to Thomson Reuters I/B/E/S.

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