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The Web, Source of Unbroken Advertising Profit for Google, Facebook, Turns on Ex-Protege Amazon

Amazon Unveils Its First Smartphone
Shareholders recently punished Amazon CEO Jeff Bezos for terrible second quarter results and warnings that the third quarter would be worse.
  • Why it matters

    Why it matters

    Losses, skittish investors and less cash on hand than its competitiors may limit Amazon’s ability to innovate.

  • Facts

    Facts

    • Amazon’s share price fell after it announced losses that were nearly double what many analysts had expected.
    • Amazon said it expects its quarterly losses to be even larger in the third quarter.
    • CEO Jeff Bezos’ strategy isn’t producing profit at the rate of Google and Facebook.
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    Audio

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Does Jeff Bezos sometimes cast envious glances at Google or Facebook? We don’t know, but what we do know is Amazon’s founder and chief executive doesn’t just want to be involved in competition to develop the best IT products and ideas. If it were up to him, he would lead the way.

The problem is he isn’t really capable. Last week, after Mr. Bezos announced that second quarter losses were nearly double what Wall Street predicted and the company forecasted higher losses for the third quarter, Amazon’s shares and valuation took a dive.

For a long time, investors had accepted Mr. Bezos’ business model and even rewarded him for investing so much in innovation. But investors’ patience and confidence seem exhausted for the moment.

If you don’t have much, you can’t do much. Perhaps it’s time for Mr. Bezos to reexamine his strategy.

If the skepticism has staying power, Mr. Bezos may face a huge, ongoing problem. On the one hand, he must invest heavily to play with the big boys. On the other hand, he cannot draw on abundant resources like companies such as Google and Facebook can.

Amazon has tight profit margins and isn’t an Internet giant enjoying fabulous returns. Amazon’s margin was minus 0.08 percent in the most recent quarter. Dealing in retail goods yields such small returns that larger investments can be financed only with great effort. Amazon’s current report says the company burned up $428 million (€318 million) in the last quarter because the cost of investments significantly exceeded cash flow.

Verdi setzt Streiks bei Amazon fort
Germany’s Amazon operations have been the subject of periodic strikes over the years. Source: DPA

 

Making major investments in future concepts are easier for corporations such as Google, with its most recent margin of 26.4 percent, or Facebook, with 48 percent. Google has $61 billion in its war chest. At the end of the second quarter, Amazon had $7.9 billion, down from the $12.4 billion at the year’s beginning.

If you don’t have much, you can’t do much. Perhaps it’s time for Mr. Bezos to reexamine his strategy.

Jens Koenen is head of Handelsblatt’s Frankfurt office. He can be reached at: koenen@handelsblatt.com

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