Amazon Misses, Q3 Sales Up 44 Percent To $10.9B; Net Income Down 73 Percent To $63M

Amazon reported third quarter earnings today. Net income decreased 73% to $63 million in the third quarter, or $0.14 per diluted share, compared with net income of $231 million, or $0.51 per diluted share, in third quarter 2010. The e-commerce giant missed Wall Street expectations; analysts expected a profit of $0.25 cents per share on $10.91 billion in revenue.

Net sales increased 44% to $10.88 billion in the third quarter, compared with $7.56 billion in third quarter 2010. Operating income was $79 million in the third quarter, compared with $268 million in third quarter 2010.

In a statement Amazon CEO and founder Jeff Bezos said that September 28th, the first day you could purchase Amazon’s new Kindle Fire and other new offerings, was the biggest order day ever for Kindle, even bigger than previous holiday peak days. “In the three weeks since launch, orders for electronic ink Kindles are double the previous launch. And based on what we’re seeing with Kindle Fire pre-orders, we’re increasing capacity and building millions more than we’d already planned,” he said.

North America segment sales, representing the Company’s U.S. and Canadian sites, were $5.93 billion, up 44% from third quarter 2010. International segment sales, representing the Company’s U.K., German, Japanese, French, Chinese, Italian and Spanish sites, were $4.94 billion, up 44% from third quarter 2010. Worldwide Media sales grew 24% to $4.15 billion. Worldwide Electronics and Other General Merchandise sales grew 59% to $6.32 billion.

For Q4, net sales are expected to be grow between 27% and 44%, or between $16.45 billion and $18.65 billion. Operating income be between a $200 million loss and $250 million gain, or between 142% decline and 47% decline compared with fourth quarter 2010.

The company has $2.8 billion in cash on hand.

Of course, all eyes are on Kindle numbers, as Amazon released its new tablet, the $199 the Kindle Fire, as well as the $79 Kindle, the $99 Kindle Touch, and the $149 Kindle Touch 3G in September. We know the Kindle is its best selling product but the company has notoriously been cagey about releasing exact sales numbers.

Amazon has also been building out its Prime movie streaming business, announcing deals with CBS, NBC, and most recently Fox.

Here are our live notes from the call, which is being hosted by Amazon’s CFO Tom Szkutak (Bezos is not on the call):

Conference Call Q&A

Szkutak says that Amazon now has 152 million active customer accounts and 2 million sellers.

Q: Are you including contributions from Kindle Fire shipments in Q4 revenue guide?

A: We feel very good about the demand we’ve seen to date.

A: We’re investing in capacity, including in fulfillments centers, in retail growth, in Kindle and digital business, in AWS. We launched four new products at the end of September and we are very excited about those. We think about the economics of Kindle business on totality, especially when it comes to content, advertisement, special offers.

Q: In markets where you are #2, do you believe that the business should be number #1 (given emerging markets)?

A: We look at it on a category by category basis and where we can add value. Where we’ve entered new categories, geographies, we think about the customer first and sometimes partner with third parties.

Q: What are the plans for ramping up content investment with streaming outside the U.S.? What’s the impact of Quidsi?

A: In terms of Lovefilm, we have been investing in content since acquisition, and we continue to invest. The business is doing very well and we are excited about this opportunity. In terms of Quidsi, they are doing a great job.

Q: How does the behavior of buyers on mobile apps compare with behavior of consumers on the PC/Web?

A: We haven’t released a lot of details on mobile, but we are seeing good trends in mobile business.

A: We’re not breaking out Kindle customer vs. non-Kindle customer. We’ve learned a lot over past couple of years since launching Kindle. We have some data with advertising and offers on Kindles on how consumers interact after purchasing a Kindle. When they purchase a Kindle, they are buying more content. When we think about lifetime value, we are thinking about the device itself, and the total economics. We expect to hava record quarter in terms of device sales in Q4.

A: In terms of content, we will be purchasing content for both our U.S. business, for both our paid and unpaid (Prime) business in Q4. We also have content costs with Lovefilm in Europe. We’re not splitting out the dollar amount for that but it is impacting the guidance in terms of investments in the business.

A: It will be very easy on fire to access all of our digital content. We’ll have book content and music content. It will also be easy to access physical product as well. It’s a premium product and at $199 not at a premium price.

Q: Can you comment on the new UI on the site and customer response. Are you paying royalties on Kindle Fire?

A: In terms of UI, I can’t really comment. We saw very strong growth rate in Q3. We can’t talk about royalties.

Q: On the fulfillment centers, you mentioned you’d expand if revenue growth was increased? Also can you comment on any supply issues with the Kindle Fire?

A: We’ve given a range of guidance for Q3 and Q4, and we are actually opening up 17, instead of 15. In terms of supply, orders are double previous launch. We are also seeing extremely strong Kindle Fire orders. We are getting ready for a great holiday season for Kindle customers.

A: In terms of employment, we’re not giving estimates on them. But the majority of additions would be in customer service.

Q: Can you talk about your international strategy?

A: Spain and Italy were most recently country launches. We’re happy to be serving those geographies.

Listen below for Amazon’s earnings call, scheduled to begin at 5 pm ET.

Below are the earnings slides:

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