Growth Spending Might Be at the Heart of Recent Amazon Losses



Amazon’s ability to post consistent earnings has never been very reliable. The company often posts losses, but what’s interesting this time is that Amazon may have some very good reasons for posting a loss. A big spending spree, possible overextension on their smartphone and original programming content, and Amazon’s own philosophy may be at fault.

Amazon’s Q3 earnings this year have been disappointing, and a big part of that is due to the dismal performance of the Fire phone. It wasn’t rated well by reviewers, and sales have been lower than expected. However, the phone plan did come with a free year of Amazon Prime, which may be more important, according to Recode.

“The Prime program is becoming increasingly crucial to Amazon’s growth, as several studies have found that Prime customers spend around twice as much in a year as non-Prime members do” Recode senior editor Jason Del Rey writes.

Indeed, the online retailer seems more interested in expansion and investment than profit, which makes sense given previous statements and performance.  “The three big ideas at Amazon are long-term thinking, customer obsession and a willingness to invent,” founder and CEO Jeff Bezos told Fortune in 2012. This is hard baked into the company’s ethos, which is important to remember when considering Amazon’s profitability.

The spending spree, which includes the acquisition of Twitch and investments in music and video streaming are also likely contributors to the losses. According to Geekwire, Amazon will sink more than $ 2.5 billion into total content-license spending in 2015, which is only a good bet if more users subscribe to Amazon Prime.

Making investments, especially in original streaming content, has shown to be a major contributing factor to future success. But delivering on growth can only sustain Amazon so long, and it seems investors are growing tired of the company’s strategy. Despite these grumblings, it’s likely that Bezos and Amazon will stay the course.

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