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Investors not Happy with Amazon’s Investments

Posted on Monday, Oct 27th 2014

Amazon (Nasdaq: AMZN) is trying several initiatives to keep the market interested in their stock, but continuing losses are leading to its “worst annual stock decline since 2008”. The stock has already fallen 22% since the beginning of the year.

Amazon’s Financials
Third quarter revenues improved 20% over the year to $20.58 billion, ending the quarter with a loss of $0.95 per share. The market was projecting revenues of $20.8 billion with a loss of $0.74 per share.

The high losses were attributed to the $170 million charge the company took on account of stockpiled inventory of their Fire phones. Amazon recently cut the phone’s price to $0.99 with a two-year contract as compared with the earlier price tag of $199.

By segment, revenues from products grew 16% to $16 billion and revenues from the services segment improved 39% to $4.55 billion.

For the current quarter, Amazon projected revenues of $27.3 billion-$30.3 billion, falling short of the Street’s forecast of $30.9 billion.

Amazon’s Latest Kindle
Amazon continues to upgrade their Kindle and recently announced the launch of their latest version Kindle Voyage. Kindle Voyage has already received rave reviews with analysts calling it Amazon’s best e-reader ever. It features an improved built-in-lighting, flush glass front, page turn buttons, automated brightness control, and also happens to be their lightest model. Amazon plans to sell Voyage at $199 each. It may be too high a price for the upgrades as it is, after all, a standalone e-reader. Amazon may want to re-evaluate their pricing strategy since they have already been burnt with the Fire smartphone inventories.

Amazon’s Expanding Offerings
As part of their expanding offerings, Amazon recently announced the launch of Amazon Fresh in Brooklyn. The grocery-focused program offers consumers the ability to shop for more than 500,000 items and plan for same-day or next-day delivery. The program will be available to Brooklyn-based Prime members for free till the end of the year. Meanwhile, Amazon plans to extend this service to Manhattan and other regions of the New York metro area.

Amazon also entered the credit card reader market by releasing a credit card reader that is similar to Square’s credit card reading device. Amazon’s device can be used by merchants to transact payments through a mobile device. Amazon hopes to make a big impact in the market by cutting down processing fees. Their proposed fee of 1.75% is lower than Square’s 2.75% and PayPal’s 2.70%.

In August this year, Amazon also announced the $970 million acquisition of video game website Twitch. Three-year-old Twitch is a live video gaming streaming site with over 55 million users accessing 15 billion minutes of content and spending more than 100 minutes a day on the website. According to Business Insider Intelligence, Twitch is the biggest site with 44% share of live video streaming traffic by volume. The move will not only help Amazon diversify into gaming, but is also expected to help improve traffic to their video streaming services.

Amazon Video
Amazon also continues to push their video service. Earlier this month, they released an upgraded Instant Video app for the PlayStation 3, PlayStation 4, and a few Samsung and LG TVs that let users stream their self-produced content. The new app allows users to display photos and videos that they have stored over Amazon’s Cloud Drive directly through the app instead of having to switch to some other gadget.

Amazon’s Video service was recently hurt by HBO’s decision to start their streaming service. In April this year, Amazon and HBO had entered into a contract that enabled Amazon to stream HBO’s content. However, HBO announced this month that they would launch their streaming service so that viewers could directly subscribe to HBO streams instead of going through Amazon. While Amazon would still retain the rights to streaming old HBO content, it is unclear right now as to how the new content would be treated.

Amazon’s continued investments in newer products and offerings will hurt their short-term financials. It is currently trading is trading at $287.06 with a market capitalization of $132.91 billion. It touched its 52-week low of $284 last week. It touched a 52-week high of $408.06 earlier this year.

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