What’s going on with Amazon .com’s profits? That’s what a few of the analysts on today’s earnings conference call seemed to be asking, albeit with some convoluted, finance-focused questions.
The context is a disappointing third quarter earnings report. While sales continue to grow, profits have not been doing the same, with Amazon only bringing in $7 million of net income during Q2, and showing a $274 million loss in Q3. Investor Marc Andreessen has actually praised Amazon CEO Jeff Bezos for not focusing on profits, but analysts today asked for some sense that the investments are actually paying off.
First, CFO Tom Szkutak was asked specifically about Amazon’s Kindle devices. Amazon isn’t making much of a profit on the devices themselves, and instead sees Kindle sales as a path to making more money later by selling digital content. So what kind of sales lift are we actually seeing? Szkutak said he couldn’t offer any specific numbers beyond the earnings report (which stated that Amazon’s total media sales grew 11 percent from last year, to $4.6 billion), but suggested in general terms that the numbers are good: “We like what we see there. That’s why we continue to invest in that business.”
Towards the end of the call, another analyst asked whether Amazon is just philosophically inclined to aim for a small operating margin. Are there an “infinite” number of things for the company to spend money on, meaning it will always increase spending to match revenue? Hard to say, since Szkutak didn’t even address the issue, choosing instead to focus on a separate question asked by the same analyst.
However, the next (and final) analyst on the call asked something in the same vein. He suggested that Amazon is now a couple of years into a period of heavy investing, so he asked: “When can we start seeing returns on this in terms of revenue?” When might the “financial ratios” start to turn around?
Again, Szkutak said he couldn’t offer any specifics on Amazon’s returns on invested capital. Instead, he quickly rattled off each of Amazon’s businesses, for example noting that it’s delivering “great returns” in retail, and said, “We feel very good about the opportunity” as the media business becomes increasingly digital. In terms of geographic growth, he noted that Amazon is investing heavily in China, but he said analysts should think of that as “more of a long-term opportunity” that won’t see immediate returns.