Shipping Costs, Technology Spending Cut Amazon’s Income
Amazon.com reported second quarter revenue of $2.1 billion, up from the $1.8 billion it generated in second quarter 2005. But the online retailer’s operating income dropped from $104 million a year ago to $47 million, and its net income fell from $52 million to $22 million. The quarter ended June 30.
Amazon attributed the income drops to technology investments and an increase in the number of customers taking advantage of Amazon Prime, a program that allows customers free unlimited two-day shipping, or reduced-cost overnight shipping, for a flat $79-per-year fee.
During the quarter, Amazon Prime cost the company $60 million: While Amazon took in $128 million in shipping revenue, it spent $188 million in outbound shipping costs, primarily due to Amazon Prime and other offers. The company anticipates further increases as the Amazon Prime program grows. The company also increased its technology and content spending from $106 million a year ago to $167 million.
Within selected segments, North American sales grew from $960 million to $1.16 billion and international sales rose from $793 million to $982 million.
During the third quarter, Amazon expects sales to reach between $2.17 billion and $2.33 billion, or 17% and 25% higher than third-quarter 2005’s levels. Operating income is expected to be between $7 million and $42 million, or between 87% and 42% lower than third-quarter 2005’s results.
