X

Amazon whiffs with hefty $126M Q2 loss after Fire TV, Phone launch

Following a profitable first quarter, the strain of multiple product launches weighs on the e-commerce giant.

Donna Tam Staff Writer / News
Donna Tam covers Amazon and other fun stuff for CNET News. She is a San Francisco native who enjoys feasting, merrymaking, checking her Gmail and reading her Kindle.
Donna Tam
4 min read

amazon-8116.jpg
James Martin/CNET

Amazon's second-quarter loss was wider than even the most tempered expectations, as the company feels the weight of introducing new products and services.

The Seattle-based e-commerce giant on Thursday posted a second-quarter loss of $126 million, or 27 cents a share, and revenue of $19.34 billion. That compares to a year-ago loss of $7 million, or 2 cents a share, on revenue of $15.7 billion.

Analysts, on average, expected the company to report a loss of 15 cents a share with $19.34 billion in revenue.

Amazon is known for its willingness to take losses to invest in new types of products and services. This quarter was no exception. The company released two hardware devices this quarter, the Fire TV and Fire Phone , and also launched two new services, Prime Music for its subscription program and Kindle Unlimited. The strain of so many new initiatives is showing.

"We continue working hard on making the Amazon customer experience better and better," CEO Jeff Bezos said in a statement before listing the many new ventures Amazon has released this quarter.

In addition to the consumer-facing products, Amazon also launched a new collaboration tool powered by its cloud computing unit Amazon Web Services. AWS is the fastest growing part of Amazon's business.

Amazon also noted its growth in India where it launched a new marketplace site a year ago. Amazon India is launching an average of one new category every 13 days and now sells over 17 million products.

During the company's earnings call, Chief Financial Officer Tom Szkutak emphasized the company's ambitious investments. When asked if Amazon's previous attempts to grow the ecosystem are starting to show results, Szkutak pointed to its Prime program. More people joined Prime in the last quarter than during the same period last year, despite a price hike that went into effect earlier this year.

"We are seeing that certainly in the number of Prime members that are subscribing and so that has some short-term impact but great long-term impact as we retain those Prime members," he said.

Amazon continues to invest heavily in original content, specifically in video streaming offerings. Szkutak said the company's studio is ramping up production on its pilots next quarter, with plans to spend $100 million on the category.

After suffering a steady decline last quarter, Amazon's stock rebounded, opening at $358.56 this morning. It closed at $358.61 a share, just before the company released its report.

After announcing a profit of $108 million in the first quarter, the company warned that investors should expect an operating loss of between $55 million and $455 million in the second quarter. For the current third quarter, Amazon said it may have an even greater loss, between $810 million and $410 million. It does, however, expect its revenue to grow between 15 percent to 26 percent from the previous year, reaching between $19.7 billion and $21.5 billion.

There is a lot of interest around Amazon's success so far with its recently launched devices, including the Fire Phone, which ships Friday. The phone was available for preorder last month, but it has been receiving mixed reviews due to its limited app ecosystem.

Szkutak gave few details around the company's strategy behind the phone. He wouldn't say whether the company expects to take a loss on the hardware to get it into customers' hands, which is a familiar Amazon strategy. Bezos made it clear at a Kindle Fire launch that the device was simply a way to get customers to spend more on Amazon's services.

Szkutak said Amazon expects the phone to stand on its own -- as well as help drive sales within its growing Prime membership -- thanks to its heavy integration with Amazon's other services.

"We certainly think it can be both," he said. "We think it can be a great product on its own. We're very excited to offer to customers. It's very integrated into our various digital services including video, games, our Appstore, e-books and certainly Prime Music. So those are all very interesting things on behalf of of customers. It's also a great way to do physical shopping as well."

It's unlikely we'll ever know exactly how well the phone has sold given Amazon's penchant for secrecy around sales figures. Marketing company Millward Brown Digital has been tracking the number of unique visitors to the Fire Phone's product pages to gauge consumers' interest in the device.

"There was huge initial interest, but that has very quickly declined in the weeks since," said Aaron Peterson, a senior associate at Millward Brown, ahead of the release of the results. After Amazon's announcement of the phone, the number of unique visitors climbed to roughly 3.3 million in the first week before dropping 84 percent last week to just over 500,000.

The Fire Phone is part of Amazon's growing hardware line, which also includes the Fire TV media streaming box announced in the beginning of the second quarter. Sales for that device are fuzzy as well, but Amazon did say the box sold out initially, which could be an indication of its popularity -- or Amazon making conservative estimates on how well the device would do.

Update, 3:31 p.m. PT: Added comments from earnings call.