Tomahawk, WI 7/29/2013 (Basicsmedia) – Amazon.com, Inc. (NSADAQ:AMZN) reported Friday its 2Q2013 results, revealing a loss, surprising markets a little. The largest online retailer on earth stated that the loss in 2Q2013 was $7 million or $0.02 per share, compared to a profit of $7 million or $0.01 a share in the year ago period. Analysts had forecast a profit of $0.05 per share. In contrast, revenues climbed 22% to $15.7 billion in 2Q2013, from $12.83 billion in the same period last year. The revenues were marginally lower than $15.73 billion that the market anticipated.

The main reason for the loss by Amazon in 2Q2013 in spite of significant increase in revenues was the higher operating expenses. The company has been constrained to spend heavily on digital content rights and order fulfilling that has eaten into the profit margins. The operating expenses of Amazon increased 23% to $15.63 billion in 2Q2013 from $12.73 billion in 2Q2012. Amazon provided revenue guidance for 3Q2013 between $15.45 and $17.15 billion, while the forecast of analysts is around $17.0 billion. However, the company cautioned that the results for 3Q2013 can be weaker due to its higher outlay of spending on its new initiatives.

Market observers point out that Amazon has been using the profits into developing its business and expanding into new areas such as e-readers, movie streaming and recently online grocery delivery. However, investors have never worried too much about the narrow profit margins of Amazon but have focused more on the strong revenue growth of the company and its long term prospects.

The shares of Amazon gained $8.61 or 2.84% in Friday’s trading to $312.01. Though the stock lost around 1.8% immediately in after-hours trading on the release of its results, it has recovered and has been up marginally by 0.09% in late after-hours trading. The shares of Amazon were at a low of $220.60 on November 15, 2012 but the gain in the market price for its shares has been steady after that.

This stability in the price of Amazon shares even after reporting a small loss definitely proves that investors have confidence in the company and do not give much importance to its actual results. They are confident that Amazon will not stop its investments and spending until it becomes the most dominant retailer in all possible and available online markets. The main reason for such investor confidence is due to three major factors.

1. Amazon has always been quite clear that its long term growth is more important than the present actual earnings per share.

2. The company has been able to generate adequate cash flow to execute its new initiatives.

3. Even though Amazon started just as an online bookseller, it is now offering a wide range of products, along with one of the most exhilarating customer experiences that any online retailer can offer.

This focus of Amazon on expanding and strengthening its infrastructure in the new areas it is venturing into at present is very likely to result in good profits in future. Analysts believe that Amazon has the capacity to achieve profits once it has stabilised its spending on infrastructure.

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