Kindles power big sales boost but Amazon still makes a loss

The Kindle Fire HD reached a wider audience around the world in the second quarter of 2013.
The Kindle Fire HD reached a wider audience around the world in the second quarter of 2013.

Kindles and digital content led a sharp rise in sales by Amazon in the second quarter of this year but costs of expansion and changes in exchange rates were major factors in bringing about a £7m loss.

Net sales rose by 22% to $15.7 billion from $12.83 billion in the second quarter of 2012. Amazon says excluding the $392 million unfavourable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales grew by 25%.

Operating income fell by 26% to $79 million from $107 million, with changes in foreign exchange rates throughout the quarter hitting operating income by $18 million.

Net loss was $7 million in the second quarter compared with net income of $7 million in the same period of 2012.

Amazon CEO and founder Jeff Bezos says: “We’re so grateful to our customers for their response to Kindle devices and our digital ecosystem. This past quarter, our top 10 selling items worldwide were all digital products – Kindles, Kindle Fire HDs, accessories and digital content.

“The Kindle service keeps getting better. The Kindle Store now offers millions of titles including more than 350,000 exclusives that you won’t find anywhere else. Prime Instant Video has surpassed 40,000 titles, including many premium exclusives like Downton Abbey and Under the Dome, and we have added more than a thousand books, games, educational apps, movies and TV shows to Kindle FreeTime Unlimited, bringing together in one place all the types of content kids and parents love.”

Amazon has been widely criticised in the UK, particularly by the Parliamentary Public Accounts Committee, for paying no corporation tax despite billions of pounds of sales in the UK which are channelled through Luxembourg. The company has also been involved with disputes with tax authorities in the US.

Developments during the quarter included:

  • Kindle Worlds, the new publishing model that allows writers to publish authorised stories inspired by popular Worlds and make them available in the Kindle Store and earn up to a 35% royalty.
  • Oliver Pötzsch became the first Amazon Publishing author to sell one million copies in combined print, audio and Kindle English-language editions worldwide.
  • Kindle Fire HD and Kindle Fire HD 8.9ins are now available in over 170 countries and territories around the world, giving access to millions of apps, games, books, audiobooks and magazines, including over 350,000 books exclusive to the Kindle Store.
  • Kindle Paperwhite and Kindle Fire HD were introduced in China, available both online at amazon.cn and retail locations. Customer response to this launch significantly exceeded expectations and product went out of stock in many retail outlets within the first week.
  • Kindle Fire HD is now available in Canada at www.amazon.ca and select retailers. Kindle Paperwhite and Kindle Fire HD are now available in India at www.amazon.in and select retailers.
  • New accessibility features for the free Kindle for iOS reading app make it easier for blind and visually impaired customers to navigate their Kindle libraries, read and interact with their books and more. Similar accessibility enhancements will be available on additional platforms in the future.
  • Goodreads now has over 20 million members, up from 10 million in less than one year.

For the third quarter, Amazon says:

  • Net sales are expected to be between $15.45 billion and $17.15 billion, between 12% and 24% growth on the third quarter of 2012.
  • Operating loss is expected to be between $440 million and $65 million, compared with $28 million in the third quarter of 2012.

This guidance includes around $340 million for stock-based compensation and amortisation of intangible assets and it assumes, among other things, that no additional business acquisitions, investments, restructurings or legal settlements are concluded and that there are no further revisions to stock-based compensation estimates.

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