Amazon's (AMZN) shares plummeted 15% in after-hours trading after it announced second quarter earnings that fell short of Wall Street's projections.
Even though Amazon reported a hefty year-over-year increase in revenues and earnings, it wasn't enough to please Wall Street. The company missed its earnings as expenses rose more than anticipated and the company issued a third quarter forecast that calls for lower than expected operating income.
During the second quarter, Amazon's revenues climbed 41% to $6.57 billion, compared with $4.65 billion last year. And its net income rose 45% to $207 million, or 45 cents a share, compared with $142 million, or 32 cents a share, last year. But analysts had been expecting the online retailing giant to post net income of 54 cents.
Despite missing Wall Street's projections, Amazon's founder and CEO Jeff Bezos seemed satisfied with the quarter.
"We're seeing rapid growth in Kindle, Amazon Web Services, third-party sales, and retail. We're also encouraged by what we see in mobile. In the last twelve months, customers around the world have ordered more than $1 billion of products from Amazon using a mobile device" the executive said in a statement.
Bezos also said that he was excited about the potential of wireless table computers. "Over time, tablet computers could become a meaningful additional driver for our business," he said.
But the quarter was also marked with additional expenses, according to Tom Szkutak, Amazon chief financial officer, during a conference call with analysts. Amazon's marketing costs spiked during the quarter, as its pioneering e-book reader Kindle faced off with Apple's highly touted iPad that launched at the start of the quarter. Toward the end of the quarter, the Kindle's profit margins got squeezed as Amazon cut the Kindle's price by 30% in response to a price cutting move by Barnes & Noble's e-reader Nook.
Amazon also saw its second quarter earnings shrink by a larger than anticipated margin when it added 2,200 additional employees in the quarter, largely staffed in its operations department. Amazon also launched additional distribution centers in the quarter, which is expected to ultimately add up to 13 more sites by the end of the year. Amazon has roughly 40 distribution centers currently.
Amazon's after hours stock performance may have also taken a hit as investors got spooked by Amazon's third quarter projections for its operating income. According to a Bloomberg report, analysts are expecting Amazon to generate $361 million in operating income in the third quarter, or a 5% margin. But the company says it thinks it will do somewhere in the $210 million to $310 million range.
Amazon Earnings Miss Street Estimates, Shares Plummet