Amazon Forecast Sparks Investor Concern on Big Spending

Amazon Forecast Sparks Investor Concern on Big Spending
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Amazon projected earnings for the current quarter that indicate stepped up spending on warehouses, movies and gadgets will continue this year at the expense of profits, according to Bloomberg. Operating income in the first quarter will be $250 million to $900 million, which is less than a year earlier even though revenue is forecast to increase as much as 23 percent to $35.8 billion.

The forecast suggests that Amazon CEO Jeff Bezos will continue expanding a delivery infrastructure designed to get products to customers quickly, produce more video content that encourages people to join and renew Amazon Prime memberships, build gadgets like the voice-activated Echo personal assistant and push further internationally into markets including India.

Amazon reported operating expenses rose 23 percent to $42.5 billion in the fourth quarter ended Dec. 31. The spending included $5.7 billion to store and deliver items, particularly those ordered by Prime customers who pay $99 a year for free, fast shipping. The company also announced it would build a $1.49 billion air hub near Cincinnati to accommodate its growing fleet of cargo planes. The hub and planes make Amazon less reliant on UPS and FedEx and complement its network of warehouses around the country.

Sales increased 22 percent to $43.7 billion in the fourth quarter, the company said in a statement. Analysts estimated $44.7 billion. Foreign currency changes reduced sales growth in the period by 2 percentage points. In Amazon Web Services, the company’s cloud-services division, revenue was $3.5 billion, up 47 percent from a year earlier.

While cloud computing is Amazon’s fastest-growing and most profitable segment, that’s down from a 55 percent rise in the third quarter. Total net income was $749 million, or $1.54 a share, from $482 million, or $1 a share, a year earlier. Analysts estimated profit of $1.36 a share.