Amazon Kindle Sales Surge, but Expenses Smoke Profits

adweek reporting:
Amazon’s Kindle Fire may be a hit with consumers, but the company is going to have to reignite confidence from Wall Street.
After reporting lower-than-expected net income and guidance for the fourth quarter, shares in Amazon sank as much as nearly 20 percent in after-hours trading.

In the last quarter, the Seattle-based e-commerce giant said net income plunged 73 percent to $63 million, or 14 cents per diluted share. Analysts expected the company to report earnings per share of 24 cents. The company also said that, in the fourth quarter, it expected an operating loss between $200 million and $250 million and revenue to be between $16.45 billion and $18.65 billion, while analysts are anticipating $18.1 billion.

The picture wasn’t entirely grim. Amazon said net sales increased 44 percent year over year to $10.88 billion. It also said that Sept. 28 (the day it revealed the new Kindle Fire) was the “biggest order day ever” for the Kindle.
"In the three weeks since launch, orders for electronic ink Kindles are double the previous launch,” said CEO Jeff Bezos in a statement. “And based on what we're seeing with Kindle Fire pre-orders, we're increasing capacity and building millions more than we'd already planned."
On a call with analysts, Amazon CFO Tom Szkutak said the company is “seeing the best growth rates we’ve seen since 2000.” To keep up with the growth, he said, it had to build more fulfillment centers and invest in retail growth and the digital business for the Kindle, which drove up operating expenses.
“We’re investing in a lot of capacity,” he said. “That’s what we’ve talked about over the past few quarters and that’s what you’re seeing in our Q3 results.”
While he didn’t give sales figures for the Kindle, he said that they feel “very, very good” about the growth and the company’s prospects for the holiday quarter. He also said that the capacity investments are important because they think about the economics of the Kindle “in totality”—not just the initial hardware sale, but the “lifetime value of those devices,” including the digital content and advertising opportunities (on some of the Kindles).
http://www.adweek.com/news/technology/amazon-kindle-sales-surge-expenses-smoke-profits-136080