Amazon's margins are shrinking as their sales grow.
July 27, 2011- Despite their sales increasing by over 50% the internet retailer saw its profits drop 8%. Amazon blamed the second quarter decrease in earnings to an increase in the retailer’s operating expenses.
Its second quarter numbers beat expectations on Wall Street helping their stock to climb while at the same time they prepare to fight California over sales tax.
Sales skyrocketed over 50% to reach $9.9 billion during the second quarter. Last year during the same reporting period they had sales of $6.5 billion. Nevertheless their earnings were down 8% coming in at $191 million or $0.41 per share. Last year its profit for the same period was $207 million or $0.45 per share.
Operating expenses increased by 54% to reach $9.7 billion. The majority of additional costs were for increased advertising for their Kindle and new distribution centers. Because of the increase in demand for digital content, Amazon has had to focus on their selling of electronic goods.
Amazon shares were helped by the report and were up after hours Tuesday to $227.25 or a 6% increase. Their stock has increased by close to 20% over the last twelve month period. They announced they expect a growth in sales for the third quarter.
The company, based in Seattle, is in a legal battle with the state of California over the state’s new law requiring sales tax to be charged by online retailers.
