Amazon posted a loss of $126m (£74m) yesterday despite rising revenues as a result of its break-neck programme of investment.
Shares in Amazon dropped about 10 per cent on the news as the losses were greater than investment analysts had been anticipating: second quarter losses were 27 cents per share rather than the 15 cents per share predicted. Further losses are anticipated for the remainder of this year, prompting fears among some analysts that Amazon is overextending itself.
"When the shipping is free the profits don't come easy," Colin Gillis, director of research at BGC Financial, told Bloomberg, "Investors are getting increasingly concerned that even though we have the revenue growth these expenses are not going to tap down. We're not going to see the leverage that was once expected... Amazon is significantly under-performing the broader marketplace."
Among recent projects which have soaked up funding but which have yet to bring in much in the way of revenues are are the forthcoming Amazon Fire Phone (pictured), a programme of delivery drones, grocery deliveries, TV streaming box, desktop as a service, an upgraded online video service with substantially more content, the recently-introduced Zocalo document storage and sharing service, and a monthly subscription-based unlimited ebook deal by which users can order as many books as they like.
Amazon faces strong competition for its cloud-based services from the likes of Microsoft and Google, which are also investing heavily in this area.
The compay's core business remains healthy for now, however, as demonstrated by revenues that rose to $19.34bn (£11.4bn) for the quarter, up 23 per cent year-on-year. The company has always operated on very fine margins with a strategy of dominating the entire market rather than carving out a niche. This has brought it into conflict with competitors, notably booksellers and media groups, with disputes ongoing over distribution rights and pricing with Hachette Book Group and and Warner Bros.