Amazon earnings up, profits down

Also: Building a robot army.

Jeff Bezos, Amazon's CEO and founder
Jeff Bezos, Amazon's CEO and founder, launches the Kindle Fire in September 2011. Photograph: Getty Images

Amazon announced better than expected quarterly results yesterday, causing its shares to rise by as much as 15 per cent in after hours trading. Net income fell 35 percent year-on-year to $130m, from $201m in first quarter 2011, but Amazon reported $13.19 billion in revenue, up 34 percent over last year and beating estimates of $12.9 billion.

The shrinking profit margins represent a quarter focused on investment for Amazon, not just in terms of its infrastructure and technology, but also in its acquisition of Kiva Systems, which makes robots for warehouse management, and its promotion of the Kindle Fire, the company's multimedia Android-based tablet which many analysts believe is being sold for little to no profit on the hope that media sales will make up the loss in the future.

Apart from profits and revenue, the big push made by Amazon in the earnings report was its growing status as a publisher in its own right. The company's founder and CEO, Jeff Bezos, said:

I’m excited to announce that we now have more than 130,000 new, in-copyright books that are exclusive to the Kindle Store – you won’t find them anywhere else. They include many of our top bestsellers – in fact, 16 of our top 100 bestselling titles are exclusive to our store.

Many of these books are technically self-published, but a growing proportion of them are published by Amazon itself, and the company is now making a move to bring that business from digital to print. Its acquisition from Penguin of the rights to publish the James Bond titles in the US is just one example of this expansion.

Notably absent from the report is any mention of the Department of Justice's suit against Apple and six major publishers for price fixing. In an investor call, however, the companies CFO said:

We do think that the suit is a big win for Kindle owners and we look forward being allowed to offer more lower prices on Kindle books.

As John Gruber notes, the accusation that Apple is engaging in anticompetitive practices is ironic, given Bezos' statement:

So 16 percent of bestselling titles are exclusive to the Kindle Store — and the Department of Justice is investigating Apple’s iBookstore. Got it.

The report also highlights the company's growing transformation into a retailer focusing on digital products, with nine of the ten top sellers on the American site in the last year being digital or related goods, including Kindle, Kindle books, movies, music and apps. Which makes it interesting that, in the last year, Amazon has increased its headcount by 73 per cent, rising from 37,900 to 65,600 employees. The company neglected to mention what the increased staffing was directed at.

With almost 20,000 extra employees, and now a robot army running its warehouses, the company doesn't seem to be backing away from its presence in the physical world any time soon.