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Amazon sees record profits of $3bn (but shares fall on growth worries)

Amazon has announced a record profit for the last three months of nearly $3bn, but lower-than-expected revenue growth resulted in shares dropping 10% for the online retail giant.


In the last quarter the company made a profit of $2.88bn, the fourth quarter that Amazon’s profits have been greater than $1bn.

Sales grew close to 30% to $56.58bn in the third quarter but were lower than the $57.1bn analysts had estimated. Shares sank close to 6% in after hours trading but were up close to 49% this year before the latest news.

The company’s costs are rising. Amazon recently announced it would raise the minimum wage at its warehouses to $15 an hour, a move that was applauded by the former, and possibly future, Democratic presidential hopeful Bernie Sanders.

The wage rise is expected to cost $3bn next year. Amazon is also spending heavily on media as it competes with Netflix and gears up for the holiday season.

The retail giant is facing hurdles to boost sales in international markets as well as increased competition at home from the likes of Best Buy, Target and Walmart, who are stepping up digital investments.

Revenue from Amazon’s international business, which brings in 27.5 percent of total sales, rose 13.4 percent in the third quarter, missing estimates, and decelerating from a 27 percent year-on-year expansion in the previous quarter.

Analysis

Aaron Goldman, CMO, 4C Insights: “Amazon, which ramped up its efforts to help marketers reach audiences in Q3, is becoming a bigger player in digital advertising, and we expect this to drive revenue growth moving forward. Consumers hold long-established confidence in the e-commerce and video platform, and developments like the announcement of API integrations for Amazon Advertising with companies like 4C are now drawing more brands to the service, especially retail and CPG companies looking to scale and optimize Amazon investments or connect their e-commerce presence with a broader range of cross-channel advertising activities. It’s already become the new No. 3 for digital ad revenue, and as advertising becomes a bigger focus, we expect it to drive future financial performance.”

Thor Johnson, CEO, inRiver: “These latest results from Amazon certainly attest to their dominance not only in product search, but now also as the third largest digital advertiser. We have seen Amazon is now the first stop for almost half (45%) of online shoppers in the UK, which not only provides huge opportunities.”

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