Here's Why Amazon Says It Will Lose A Whopping $US410-$810 Million This Quarter

Jeff BezosReutersAmazon’s Jeff Bezos

Amazon’s stock is tanking after the company delivered disappointing Q2 earnings, including enormous predicted losses for next quarter of between $US410 and $US810 million.

In its press release, Amazon said that about $US410 million of that will go to stock-based compensation, but what about the other potential $US400 million?

In Amazon’s earnings call, CFO Tom Szkutak explained several major contributors to the expected losses: Investment in Amazon Web Services, digital content, and the development of new fulfillment and “sortation” centres.

Szkutak says that AWS usage grew by 90% year-over-year and that the company plans on continuing to invest heavily. This year, Amazon released 250 new services and features. It also gave users more discounts (just days after Google cut prices for its cloud services earlier this year, Amazon slashed its own prices, proudly touting its 42nd price-cut in six years).

Szkutak also also said that the company plans to spend more than $US100 million on original video content in the third quarter. Amazon wants to beef up its Prime Instant Video content to make its $US99 Prime subscriptions more attractive to potential members. The more people who sign up for Prime, the better for Amazon (people with Prime spend almost double the amount on Amazon as non-members).

Finally, on its constant quest for speedier delivery, Amazon is adding six new fulfillment centres and 15 or more “sortation” centres. The point of sortation centres is to making shipping more efficient. Amazon sends prepared customer packages to sortation centres where they’re then sorted and shipped to individual post offices, which Szkutak says helps get product to customers faster, and on Sundays (Amazon now delivers on Sundays to 17 cities).

Despite Szkutak’s explanations, investors on the call still seemed sceptical. Although they have typically accepted Jeff Bezos’ mantra of taking losses now for long-term success, the stock plunge is clearly an indicator that they’re running out of patience.

Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.

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