Online retail veteran Amazon last night said its profits plunged more than a third in its most recent financial quarter despite a 24% rise in sales.
Amazon blamed the drop in profits on investments in inventory for the year-end holiday shopping and on promotions such as free shipping to attract shoppers to the website.
Amazon's CEO Jeff Bezos focused on the company's climbing sales and the increasing membership in Amazon Prime, which provides two-day shipping on orders at no extra charge in exchange for a $79 annual fee.
'We're pleased with the strong revenue growth and rapid adoption of Amazon Prime,' Bezos said. 'We look forward to seeing significant sequential improvement in operating leverage (this quarter) even as we continue to invest in many initiatives including new retail categories, seller platforms, web services and digital,' he added.
Amazon said it has invested heavily in beefing up its inventory of toys and other goods in anticipation of record-setting sales during the year-end gift-giving season.
Amazon said that its warehouses have 50% more goods on-hand now than they did this time last year and 125,000 different new products have been stocked.
Bezos said it was too early to determine how well the company's newly launched Amazon Unbox digital video download service would perform. Unbox offers television shows, movies and other video content from over 30 film studio and television networks from Hollywood and elsewhere.
Operating expenses for the third quarter were $509m compared with $408m the same time last year. Amazon sales for the quarter ending September 30 were $2.31 billion compared with $1.85 billion. Amazon reported net income of $19m, or five cents per share, besting the expectations of analysts by two cents per share.
The Seattle, Washington company's income was 37% less than the $30m reported in the third quarter of 2005. Amazon expected to finish the year with net sales ranging from $10.35-10.67 billion, an increase of 22-26% from 2005.
The company predicted operating income for this year between $339-429m, a decline of between 1-22% from a year ago.
