Amazon’s overseas weakness overshadows strength at home
Reuters in San Francisco
Amazon.com forecast disappointing income and revenue as it grapples with a weaker international market, overshadowing improving profitability and economic conditions in the United States.
Amazon and other multinational corporations are being pressured by a declining European economy that is sapping consumer spending across the region. While North American net sales jumped 30 per cent in the latest second quarter, its international segment barely broke even with revenue rising 13 per cent.
“International was far weaker than expected and that plays into the guidance. We’re seeing weakness on the international side that the domestic business isn’t able to make up,” said Scott Tilghman, an analyst with B. Riley & Co.
“The European consumer has been weak. It’s a tremendous opportunity for Amazon. International margins have been constrained. If they can get to 5 per cent profit margins or more, that’s tremendous operating leverage. But you need the macro environment to be better.”
Amazon shares fell 2.1 per cent to US$297 in after-hours trade.
After the bell on Thursday, the company reported a second-quarter net loss of US$7 million or 2 cents a share, compared to a profit of US$7 million or a penny a share a year earlier. Revenue in the latest quarter was US$15.7 billion.
The largest Internet retailer had been expected to earn 5 cents a share on US$15.73 billion in revenue in the latest quarter, according to Thomson Reuters I/B/E/S.
Amazon also issued a cautious third-quarter outlook. It forecast revenue of US$15.45 billion to US$17.15 billion and operating results ranging from a loss of US$100 million to a profit of US$275 million.
Wall Street was looking for third quarter revenue of US$17 billion and operating profit of US$390 million.
Amazon is trying to turn itself from an online retailer into a broader technology company offering consumer gadgets like tablets and cloud computing services to corporations and governments. It is doing this while expanding in competitive overseas markets such as China.
It is spending billions of dollars on this expansion, which has taken a toll on its earnings. However, investors have so far trusted that Chief Executive and Founder Jeff Bezos can pull it off and produce big profits in the future. That’s pushed Amazon shares to new records in recent weeks.