Amazon cites 'transition' for profit drop

Amazon reported record sales in the Christmas shopping period, although profits fell sharply as the company says it is experiencing its “transition period” from physical to digital goods.

Amazon

The online retailer increased sales by 22 per cent year on year to $21bn (£13bn) in the three months to 31 December. Net income fell to $97m (£62m), down from $177m (£122m) in the same quarter a year earlier.

While Amazon gave no sales figures for its Kindle Fire HD devices, the company said the tablet was the top selling, most “gifted” and most “wished for” product across the millions of items it sells worldwide.

Its digital media selection has grown to include 23 million films, TV shows, songs, magazines, books, audiobooks, apps and games - up from 19 million at the end of 2011.

Jeff Bezos, Amazon founder and chief executive, says: “We’re now seeing the transition we’ve been expecting. After 5 years, ebooks is a multi-billion dollar category for us and growing fast - up approximately 70 per cent last year. In contrast, our physical book sales experienced the lowest December growth rate in our 17 years as a book seller, up just 5 per cent. We’re excited and very grateful to our customers for their response to Kindle and our ever expanding ecosystem and selection.”

Earlier this week The Financial Times reported Amazon is pitching to marketers a range of new targeted advertising products to appear on its site, Kindle devices and other destinations on the web as it looks to boost its share of the digital advertising market and become more competitive with the likes of Google, Facebook and Yahoo.

Elsewhere in Amazon’s financial results statement, the company revealed it has boosted its cash reserves from $3bn (£1.9bn) at the beginning of the quarter up to $8bn (£5.1bn) by the end.

The increase is likely to mount pressure on the company in the UK, where it has come under fire for siphoning its profits out of the region via a network of subsidiaries - in a similar process to other companies such as Starbucks and Google.

The company has paid just £2.3m in UK tax in the past three years - according to available figures - even though it generates around 10 per cent of its revenue here.

Readers' comments (1)

  • Although Amazon's net income for the three months to the end of December was down, versus the same period in 2011, it also saw an increase in revenues during the period, from $17.43bn a year ago, to $21.27bn, a huge jump of 22 percent.

    Based on our analysis of customer satisfaction across the top 40 online retailers in December, we knew both Amazon.co.uk and Amazon.com would do well. The sites took first and second place in the league table and achieved scores over 80 on a 100 point scale (80 is generally considered the threshold for excellence) – something only three companies were able to achieve.

    There is clear evidence of a powerful and quantifiable relationship between a positive customer experience online and increased loyalty, sales, and recommendations – something Amazon have clearly cottoned on to.

    Amazon have also been quick this year to capitalise on the enthusiasm around mobile shopping and this has really served them well.

    They'll have to keep working hard however to stay top of the pack - no retailers can afford to sit back on their laurels in such a competitive market.

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