Web Services
Weighing on results is a price war in the cloud-computing market, where Amazon rents data storage and computing power to other companies. Amazon, whose cloud competitors include Google Inc. and Microsoft Corp., cut prices for its Amazon Web Services unit this year.
While Amazon doesn’t disclose specific sales for Web services, it’s part of the “other” category under North American sales in its financial statements, where revenue in the second quarter declined by 3 percent to $1.17 billion from the prior period.
“We had very substantial price reductions,” Chief Financial Officer Tom Szkutak said on a conference call.
Amazon’s lack of profits stands in stark contrast to Alibaba Group Holding Ltd., which has better margins and is planning an initial public offering soon. The Chinese Web retailer disclosed in a prospectus in May that its profit totaled $2.8 billion for the nine months ended Dec. 31 on revenue of $6.5 billion. Amazon earned $274 million for all of 2013 on sales of $74.5 billion.
Investment Cycle
The loss in the latest period was the biggest since the third quarter of 2012, when Amazon posted a $274 million loss. Looking ahead, Amazon projected sales of $19.7 billion to $21.5 billion for the current quarter. Operating losses are projected to be $810 million to $410 million, Amazon said.
Amazon is in an investment cycle, which benefits customers and will eventually end, said Szkutak, without specifying when that will be.
“We have a tremendous amount of opportunity,” he said. While it’s impacting short-term results, “we’ll obviously be looking to get great returns on invested capital.”
Amazon doesn’t disclose certain information that could shed a light on whether its investments are working. Key portions of its business are absent from its financial reports, including Kindle sales, membership figures for the $99-a-year Prime program, and the profit it collects from its main online store.