Amazon’s Earnings Beat Expectations, Even as Profits Fall

Amazon, the Internet retailer, said Tuesday that its second-quarter profit dropped by 8 percent, which might seem like bad news. But the decline was not nearly as much as Amazon, or analysts, had expected, and anyway the profit was being sacrificed for what the company said was a good cause — new investments in technology and warehouses.

Three months ago, Amazon predicted that second-quarter profits might fall by as much as two-thirds. But the company is apparently doing so well that it can make sizable investments and barely feel the pain.

In after-hours trading, investors celebrated by pushing the stock up $13.35, to $227.53.

“Low prices, expanding selection, fast delivery and innovation are driving the fastest growth we’ve seen in over a decade,” Jeff Bezos, Amazon’s founder and chief executive, said in a statement.

Net income fell to $191 million, or 41 cents a share, compared with $207 million, or 45 cents a share, in the second quarter of 2010. The comparison would have been worse, but the latest quarter’s results were helped by a $15 million investment gain. Revenue continued to be strong, rising 51 percent, to $9.91 billion.

Analysts had expected worse: they predicted second-quarter earnings of 35 cents a share on revenue of $9.373 billion.

Amazon has never placed the emphasis on profit that some short-term investors might have wished. It took years to turn a profit because it was working so hard to achieve a dominant position in Web retailing. That distinction was achieved long ago; now it is once again spending heavily to solidify and extend its position — mostly by building two kinds of storage centers, for physical goods and for data.

Three weeks ago, Amazon announced it would open a 900,000-square-foot warehouse in Plainfield, Ind., its fourth in the state. The next day it announced its fourth warehouse in Arizona, this one a 1.2 million-square-foot behemoth in Phoenix.

The Seattle-based company is also expected to follow the success of its Kindle e-reader by introducing a multipurpose tablet this fall. The tablet will allow users to read the electronic books they bought from Amazon, listen to the music they bought from Amazon and watch video they bought from Amazon, all on one device.

When Amazon reported in April that its net income in the first quarter was down an unexpected 33 percent from 2010, it simultaneously squelched expectations for the second quarter. Two bad quarters are the beginning of a trend, but investors do not seem to mind the downward drift. They have bid up the stock price about 10 percent in the last three months. The market value of Amazon is now nearly $100 billion.

Amazon has recently achieved two milestones with regard to its original business, bookselling. In May, less than four years after the introduction of the Kindle, the company said it was selling more e-books than physical books. Then, as if to punctuate the quickening transition to digital, came the news last week that the Borders chain of bookstores was liquidating.

When Amazon began mailing books to Internet buyers in 1995, Borders reigned as the Amazon of the era; it was smart, dominant and feared. But despite Borders’s selling many copies of “The Innovator’s Dilemma,” Clayton Christensen’s classic work on how successful companies ignore disruptive technologies at their peril, it seems as if no one at the chain may have read it. Borders essentially ignored the Internet, and the Internet mowed it down.

Mr. Bezos has always been determined not to be out-innovated. The new tablet will put the company into direct competition with Apple and its iPad, plus a clutch of would-be iPads from other companies. “Their e-book success is enormous but their success with digital video and music is not so enormous,” said Bill Rosenblatt of GiantSteps Media Technology Strategies, a consulting firm. “They need to do something to address the fact that people are using media consumption devices that handle everything.”

It will be an uphill battle to take on Apple and the others, Mr. Rosenblatt said, but he would not count Amazon out.

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