Amazon.com Inc reported its first quarterly net loss in more than five years on Thursday as the world's largest Internet retailer spent heavily and suffered from an economic slowdown in Europe.
Amazon shares slipped slightly to $220.75 in after-hours trading after the results.
The company said its third-quarter net loss was $274 million, or 60 cents a share, versus net income of $63 million, or 14 cents a share, in the third quarter of 2011. Part of the loss related to an impairment charge from Amazon's investment in daily deal company LivingSocial.
Third-quarter revenue was $13.81 billion, up 27 percent from a year earlier, Amazon also said.
Amazon was expected to lose 8 cents a share in the third quarter on revenue of $13.9 billion, according to Thomson Reuters I/B/E/S.
The last time Amazon reported a quarterly net loss was in the third quarter of 2003, according to Thomson Reuters data.
For the crucial fourth-quarter holiday shopping period, Amazon forecast revenue that missed analysts' expectations. The company also gave a wide forecast for operating income in the period - and the mid-point of the range was lower than some analysts' estimates.
"There's increased competition from mass merchants and big box retailers embedded in that guidance," said RJ Hottovy, an equity analyst at Morningstar. "There's a lot of competition this holiday, and it's not clear how this will play out, even for smart operators like Amazon."
Amazon is facing more competition this holiday season from big retailers such as Target Corp and Best Buy Co Inc , which are planning to match some of the company's prices online.
Wal-Mart Stores Inc, the world's largest retailer, is also testing same-day delivery in some cities this holiday, while Target is selling more exclusive products that cannot be bought at lower prices online.
Amazon is also spending heavily on new distribution warehouses and technology to support its cloud-computing businesses, Amazon Web Services. It is also investing hundreds of millions of dollars a year on digital content to sell through its Kindle tablets and e-readers.
Amazon Chief Financial Officer Tom Szkutak said the company will continue investing heavily in technology, infrastructure and digital content.
The company spent $1.51 billion on shipping and warehouses in the third quarter, up from $1.12 billion a year earlier. Technology and content spending reached $1.19 billion, up from $769 million in the same period last year.
The Kindle gadgets are being sold at cost, pressuring earnings in the short term. Amazon hopes to make money when customers use them to buy more physical and digital products from the company.
Amazon launched new Kindle Fire tablets in September and CFO Szkutak said demand has been "fantastic."
Chief Executive Jeff Bezos said in a statement that the new $199 Kindle Fire HD, the new Kindle Paperwhite e-reader and the entry-level $69 Kindle e-reader are the top three best-selling products on Amazon, based on unit sales.
Szkutak said Kindle Fire tablet users are purchasing a lot more digital content through the devices, as well as watching free video content.
The introduction of new tablets and e-readers should be good for digital content sales going forward, he added.
Europe's sovereign debt crisis and recession is reducing consumer demand, sparking concern that even fast-growing Internet companies may be affected.
EBay Chief Financial Officer Bob Swan said last week that the company expected an "OK" holiday season, partly because of macro pressure in Europe.
Amazon said on Thursday that revenue from North America was $7.88 billion, up 33 percent from a year earlier. International sales, including Europe, totaled $5.92 billion, up 20 percent from the same period in 2011.
South Korean technology powerhouse Samsung Electronics Co posted a fourth straight record quarterly profit - of $7.4 billion - with strong sales of its Galaxy range of phones masking sharply lower sales of memory chips.
The record run, though, is likely to end in December, with profit growth slowing even more next year as TV markets stagnate and growth in high-end smartphones eases from the recent breakneck speed. Profit is expected to grow 16 percent next year, down from a forecast 73 percent this year, according to Thomson Reuters I/B/E/S.
"The biggest concern for Samsung is that its smartphone growth momentum will slow. It'll be difficult to maintain such a high profit margin from handsets as the market gets crowded and competition will intensify," said Nam Dae-jong, an analyst at Hana Daetoo Securities.
Reporting just hours after rival Apple Inc, Samsung said July-September operating profit almost doubled to 8.12 trillion won, in line with its earlier estimate. Net profit rose to 6.56 trillion won.
Samsung sold 56.3 million smartphones in the third quarter, according to research firm IDC, giving it a global market share of 31.3 percent - more than double that of Apple, which said it sold 26.9 million iPhones. Apple launched its latest iPhone 5 on September 21.
Samsung posts $7.4B profit, handsets mask weak chips
Samsung said it will book patent-related provisions once a US court rules on its litigation with Apple. A US federal jury said in August that Samsung had copied key features of the iPhone, awarding Apple $1.05 billion in damages. Apple has since asked for another $707 million, and the California court is set to rule on that in early December.
"The amount of provisioning will be fixed according to the U.S. court ruling, and the costs will be set aside this quarter only if there's a ruling within the current quarter," said Robert Yi, head of Samsung's investor relations.
Next big thing
While Samsung outsells Apple in gadgets, the Korean group's market value is just a third of the U.S. firm's $578 billion, and investors question whether it can narrow that gap as the stellar handset business is set to lose steam and Apple, also its biggest customer, looks to spread its supplier base wider.
"Samsung has a lot of strong businesses like tablets, OLED TVs and micro-processor chips that could become its next big thing and step it up to the next level," said Lee Sun-tae, analyst at NH Investment & Securities. "But these aren't fully ready to become a real earnings driver like the Galaxy."
Illustrating the might of Samsung's handset business, third-quarter profits from the mobile division more than doubled to 5.63 trillion won - 69 percent of total group profit - as sales of the Galaxy S III, introduced in late May, powered ahead of the iPhone 5 launch. Samsung is estimated to have shipped 18-20 million S IIIs in July-September.
But strong sales of Apple devices - iPhones, iPads and iPods - also help the Korean group, which makes chips, micro-processors and flat screens for the popular gadgets.
Still Samsung shares trade more cheaply - at 7.5 times next year's estimated earnings versus Apple's 11.6 times - as its broader business portfolio, including thin-margin washing machines and fridges, makes it more vulnerable to weak consumer spending. Shares in Samsung have climbed 24 percent this year, easily outpacing the benchmark KOSPI's 5 percent gain, but only half the gains made by Apple.
Samsung traded down 2 percent in Seoul on Friday.
"It will take time for Samsung to narrow the gap with Apple in tablets. Its Galaxy Tab tablet PCs aren't sexy enough to outsell Apple's iPad," said NH Investment's Lee. "There are concerns Samsung's earnings would peak this year. There's little room for its mobile business to make more money, while there's a limited upside in chips and displays."
Samsung is now looking to a new range of mobile products, such as its Ativ tablets using Microsoft's new Windows operating system, to propel growth. And it needs new clients for its screens and chips as Apple peels away to other suppliers.
Samsung has stopped supplying displays for the iPhone, and has a reduced role in the iPad panel - down to 26 percent this quarter from 38 percent a year ago, according to DisplaySearch. Apple is buying fewer memory chips from Samsung for the iPhone 5, relying more on SK Hynix Inc and Elpida Memory.
Bernstein analysts reckon Apple will also gradually phase out Samsung as the main supplier of the mobile micro-processor, used to power the iPhone and iPad, and shift to rival supplier TSMC, starting late next year.
Despite Apple's migration to rival suppliers, Samsung's display division returned to a profit of 1.1 trillion won from a year-earlier loss, on improving sales of mobile displays used in the Galaxy series and other high-end phones and tablets.
Analysts said Samsung should benefit as more electronics vendors reshuffle their products to make more tablets and slim ultrabooks, which consume expensive flat-screens, more sophisticated packaged chips and memory chips.
"That key component market is getting tighter, thanks to the mobile boom. There are now lots of IT companies producing tablets and ultrabooks. This will restore the component supply imbalance, which has been extremely skewed to Apple due to its huge bargaining power," said Kim Sung-in, an analyst at Kiwoom Securities.
Chips are down
Third-quarter profit at Samsung's chip division, which competes against Toshiba Corp and SK Hynix, dropped 28 percent to 1.15 trillion won as prices of dynamic random access memory (DRAM) chips sagged, though a recovery in NAND flash chips, widely used in mobile devices, helped offset the weakness. The company said it expected DRAM oversupply to run on into the current quarter, but the NAND market would be tight.
Samsung predicted the year-end holiday season would see only a muted rise in demand as consumers from Europe to the United States spend cautiously in a weak economy. It said it would look to protect margins by increasing mobile micro-processors and improving the mix of high-value memory chips.
Underscoring the weak demand, the Bank of Korea said on Friday the economy grew just 0.2 percent in July-September from the previous quarter, with companies spending less because of the export gloom.
Samsung's quarterly revenue was equal to around a fifth of South Korea's GDP.