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Amazon.com Inc (Nasdaq: AMZN): Investors Flee on Weak Q3 Outlook

By , Money Morning •

Amazon.com Inc. (Nasdaq: AMZN) today (Thursday) reported a fiscal second-quarter profit of $7 million, or a penny a share, on revenue of $12.83 billion - very close to what was expected, but still a miss.

Analysts forecast a sharp increase in revenue, estimating earnings per share of two cents on revenue of $12.92 billion. Sales were up 29%., but net income fell 96% from the same period a year ago.

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Weighing on its bottom line was investments in new distribution facilities, a number closely watched because Amazon has a history of reporting strong revenue. The company has been plowing copious amounts of its earnings into building a distribution network to help it more efficiently grow its business long term.

After reporting better-than-expected first-quarter numbers, 41 cents on revenue of $9.91 billion, the Seattle, WA.-based company had expected revenue to fall in the range of $11.9 billion and $13.3 billion.

Pushing the stock down as much as 7% in after-hours trading was the Q3 guidance.

Amazon.com predicted a Q3 operating loss of between $50 million and $350 million, versus Wall Street estimates of income of $119.6 million. Amazon said it expects Q3 revenue of $12.9 to $14.3 billion, which includes the Wall Street estimate of $14.1 billion.

Amazon.com (Nasdaq: AMZN): Love that Kindle Fire

Amazon.com has never disclosed an exact sales number for the Kindle Fire, something investors were looking for in the call. But it did say Kindle Fire remains the best-selling product among Amazon.com offerings.

Target Corp. (NYSE: TGT) stopped carrying the e-reader after Amazon inked a deal with U.K. bookseller Waterstones to carry the devices. A new souped-up version is set to launch shortly.

Baird analyst Colin Sebastian said the new launch and the rising costs for acquiring content should "warrant some caution" in regards to the company's results.

An ongoing issue Amazon.com must deal with is a sales tax dispute. As states all across the U.S. are dealing with shortfall and budget cuts, the debate over collecting sales tax from items sold on Amazon.com and other online retailers has heated up lately.

Currently, Amazon.com only collects sales tax from residents of Kentucky, Nebraska, New York, North Dakota, Texas and Washington. While Amazon says it supports a law to collect sales tax from every state, it wants Congress, not individual states, to settle the issue of whether it is required to do so.

Amazon.com, which has separate retail Websites for the United States, Canada, United Kingdom, France, Germany, Italy, Spain and China, also has to offset the effects from the ailing Eurozone region and the slowdown in China, cutting into sales.

Overall, online retailers have muddled through the economic downturn better than anchor stores, as eBay Inc.'s (Nasdaq: EBAY) strong second-quarter numbers reflected last week.

Amazon.com credited Amazon Prime for most of its success.

CEO Jeff Bezos offered this in the report: "Amazon Prime is now the best bargain in the history of shopping - that is not hyperbole. We successfully launched Prime seven years ago with free unlimited two-day shipping on one million items. The price of annual membership was $79. Since then, Prime selection has grown to 15 million items. We've also added 18,000 movies and TV episodes available for unlimited streaming. And we've added the Kindle Owners' Lending Library - borrow 170,000 books for free with no due dates - it even includes all seven Harry Potter books. What hasn't changed since we launched Prime? The price. It's still $79. We're very grateful to our Prime members, and thank them whole-heartedly for the business and for the word-of-mouth that has made this program grow."

Amazon.com (Nasdaq: AMZN) stock rose 1.36% Thursday before the company's earnings release, closing at $220.01.

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