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October 21, 2010By Michael Cader

Amazon Boosts Sales But Margins Suffer, Worrying Wall Street, and Media Sales Slow

October 21, 2010By Michael Cader

Amazon reported yesterday that third quarter sales rose 39 percent to $7.56 billion, with net income of $231 million and operating income of $268 million, up 7 percent. While they beat analysts’ expectations, somewhat moderated after coming up short in the second quarter, operating margin looks to have fallen considerably, from 4.6 percent down to 3.5 percent. With earnings lagging sales growth throughout this fiscal year, the company’s shares were down sharply last night in the after-market, but investors reconsidered this morning and the stock is rising again.

The press release “highlights” are almost all Kindle, so you have to wonder–again–the extent to which pushing Kindle is impinging on the company’s margins (just as investment in Nook is currently a drain on the smaller Barnes & Noble). But it will remain wondering, since the company continues to decline to provide specific data. What is continuously clear is Amazon’s conversion from its roots as an online seller of media to its current role as a seller of electronics and other “general merchandise.”

North American media sales rose 13 percent, to $1.591 billion, as international media sales rose 16 percent, at $1.759 billion, now consistently ahead of NA sales. That North American media segment showed its smallest gain excluding foreign exchange for at least the last five quarters. International media growth is decelerating as well. Electronics (and other general merchandise), which is where they report Kindle device sales, comprised $3.97 billion for the quarter, up 68 percent.

CFO Thomas Szkutak said in a conference call with investors they “saw very strong revenue growth in the quarter” for books, though perhaps at the expense of margins: “in fact from the unit perspective, we saw accelerated growth in both physical and Kindle books in Q3 relative to Q2.” He added that there was “some softness” in music and video sales.

The Kindle store, where for a while about 30 percent of titles were priced above $9.99, now has 130,000 titles (or approximately 18 percent of the total) at $10 or more.
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One data clue about ereaders has come recently from AT&T, which services the 3G Kindles and Nooks among other devices. (Of course with the rise of wi-fi ereaders–which Nook added in June and Kindle launched in late August–AT&T’s data is less than complete.)

Reporting for the quarter ending September 30, AT&T said yesterday that they added a total of 1.2 million “connected devices” during the quarter. That category includes eReaders along with all manner of other gizmos–security and gps systems, digital photo frames, etc. That’s up from 900,000 such devices last quarter, and comparese to 235,000 such devices this quarter a year ago.

Filed Under: Booksellers, Earnings Reports, Free

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