Bloomberg/San Francisco
Amazon.com’s Jeff Bezos scared off investors across the technology landscape after announcing intentions to continue his spending spree.
Amazon shares fell almost 10% on Friday, leading an industrywide plunge that pushed Facebook, Twitter, Netflix and LinkedIn Corp each down more than 5%. They all gained at least 59% in 2013, double the increase in the Standard & Poor’s 500 Index.
“You’ve seen a prick in the bubble of some of these tech stocks,” said Pat Becker Jr, a fund manager at Becker Capital Management in Portland, Oregon, which oversees $3.1bn. “It’s been a momentum driven market in some names and that momentum has ceased.”
Bezos, Amazon’s chief executive officer, is pouring cash into warehouses, a grocery delivery service and a TV set-top box, and the company said it expects an operating loss this quarter of $55mn to $455mn. Facebook struck a similar chord earlier in the week, saying that spending will increase for the rest of this year on projects like the photo- sharing application Instagram and video advertising.
Those comments didn’t sit well with profit-hungry investors. The Nasdaq Composite Index fell 1.8% today, with four-fifths of its members declining. The index is down 6.5% since its high for the year in early March.
Amazon’s expenses rose 23% during the quarter. Net income rose to $108mn, or 23 cents a share, from $82mn, or 18 cents a year ago, matching analysts’ estimates.
“People who are hoping for the profit kick are going to have to wait a long time,” said Kerry Rice, an analyst at Needham & Co in San Francisco who rates the stock a hold.
The shares fell 9.9% to $303.83 at the close in New York, the lowest in six months. Amazon has lost almost a quarter of its value this year.
Bezos is pushing Amazon far beyond its roots as an online seller of everything from books to children’s toys. Its cloud- computing business, Amazon Web Services, is used by companies including Comcast Corp, Pfizer Inc and scores of Silicon Valley startups.
Total operating expenses increased to $19.6bn from $15.9bn a year ago. In particular, fulfilment expenses climbed 29% to $2.3bn while technology and content costs jumped 44% to $2bn. The spending crimped the company’s narrow operating margin to 0.7%, down from 1.1% a year earlier.
The company has taken steps to defray some costs. It increased the price of its fast-shipping membership programme, called Prime, by 25%. Customers now pay $99 a year, up from $79 previously.
Amazon has boosted investment in China, with fulfilment centres and retail to make sure the company has items in stock for customers, Chief Financial Officer Tom Szkutak said on a conference call. The company has also started ramping up spending in Italy and Spain, he said.
Looking ahead, Amazon projected sales of $18.1bn to $19.8bn for the current quarter. Analysts were on average estimating $19bn, according to data compiled by Bloomberg.
The company also unveiled a new grocery service for its Prime members called Prime Pantry, which lets people buy goods in bulk to pack into a box that holds as much as 45 pounds and that can be shipped for a flat $5.99 fee.
Amazon is releasing more hardware gadgets and has been developing a smartphone to vie with Apple’s iPhone and devices that run Google’s Android operating system, people with knowledge of the matter have said.
In addition, Bezos is making Amazon a force in the media industry. The company this week announced a partnership so Prime subscribers can stream older HBO shows, including “The Sopranos” and “The Wire,” through Amazon’s Instant Video service. That followed Amazon’s introduction of the Fire TV set- top box for watching Internet-delivered programs and movies.
The efforts have Amazon competing more directly with Apple, Netflix and Google, which also are also vying for a piece of people’s home-entertainment dollars.
“Amazon keeps spending like drunken sailors,” said Gene Munster, an analyst with Piper Jaffray Cos, who has the equivalent of a buy rating on the stock.