Amazon’s Loss Widens as Cost of Growth Rises

Amazon.com’s long honeymoon period with Wall Street drew to a close Wednesday as the pioneering Internet retailer reported widening losses, testing the patience of analysts and investors.

With more than 23 million customers, the online seller of books, music and a host of other merchandise is still the dominant player in the much-hyped consumer e-commerce sector. And the Seattle company keeps growing: It gained 2.5 million new customers during the second quarter and saw revenue climb 84% compared with the same period last year.

But analysts have been more concerned with other trends. Customers who shop on Amazon for books, CDs, videos and DVDs haven’t been as enthusiastic about the company’s newer offerings, ranging from cosmetics and kitchenware to power tools and patio furniture. Meanwhile, the cost of acquiring new customers is growing.

As a result, Amazon.com reported a quarterly operating loss of $180 million, or 33 cents per share. That loss was 60% higher than in the same quarter last year and was only slightly lower than the $198-million operating loss it reported in this year’s first quarter. Analysts had expected Amazon.com to report an operating loss of 35 cents per share, according to a survey by First Call/Thomson Financial.

Amazon.com’s net loss, including interest expense and its share of losses in other Net-related companies, rose to $317.2 million in the second quarter, more than double its $138-million net loss a year ago and up 3% from its $308.4-million net loss in the first quarter.

The company’s latest quarterly revenue of $578 million was essentially flat compared with first-quarter sales of $574 million. And compared with last year’s second quarter, Amazon.com’s revenue was up 84% from $314 million.

Shares of Amazon.com dropped $1.56 to close at $36.06 in regular Nasdaq trading Wednesday. The company reported its results after the close of trading. Amazon’s stock fell below $32 in after-hours trading.

The stock has fallen 60% this year and is now trading at its lowest level since December 1998.

Amazon.com’s oldest online stores--U.S. Books, Music, and DVD/Video--combined for a $10-million operating profit during the quarter, the company said. But analysts were expecting more.

“The company needs to show investors at least some kind of concrete deadline for [positive] cash flow and earnings,” said Paul Meeks, manager of the Merrill Lynch Global Technology Fund, which sold all its Amazon.com holdings by the end of last year.

Investors are now impatient with Chief Executive Jeff Bezos’ strategy of expanding its customer base and product offerings as quickly as possible, even at the expense of profitability, analysts said.

“That used to fly a year ago, but now nobody buys it,” said Meeks.

Analysts said customers might be getting confused now that the company that once touted itself as “Earth’s biggest bookstore” more closely resembles an online shopping mall and flea market.

“You say Amazon.com to a consumer, and they think books or CDs,” said Gene Alvarez, program director for electronic-business strategies at consulting firm META Group Inc. “Some of the other items they’ve started to sell kind of blur.”

In a conference call with analysts, Amazon.com Chief Financial Officer Warren Jenson acknowledged that his company’s “growth was slower than our internal plan.”

That’s one of the reasons analysts have downgraded the company’s stock in recent days. Lehman Bros. analyst Holly Becker cut her rating on Amazon.com stock from “buy” to “neutral” Wednesday before the earnings were released. One day earlier, Banc of America Securities analyst Tom Courtney downgraded the stock from “strong buy” to “buy.” Those announcements sent Amazon.com shares down 7% in two days.

The company’s stock hit a 52-week low of $32.47 last month after a Lehman Bros. convertible debt analyst warned that high debt, negative cash flow and “poor working capital management” would put the company at risk.

But Jenson said the company was financially strong, with a cash balance of $908 million after spending about $100 million in cash in the latest quarter. Amazon.com will end the year with about $1 billion in cash, he said.

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Times wire services were used in compiling this report.

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More Red Ink

Amazon.com’s net loss widened in the second quarter, while sales were up just marginally from the first quarter. Losses by quarter, in millions:

2nd quarter 2000: --$317.2 million

Source: Bloomberg News