Amazon Earnings Down Sharply For Q3 2011, Even As Sales Rise

With the $199 Kindle Fire tablet shipping in a little over two weeks, Amazon (NSDQ: AMZN) announced $10.88 billion in revenues for Q3 2011, up 44 percent over this time last year, but net income of $63 million on $0.14 per share–down 73 percent from last year. Strong sales, and apparently high Kindle pre-orders, were offset by the company’s continued heavy spending on 17 new fulfillment centers and the likelihood that the company is subsidizing the cost of the Kindle Fire. Shares were down 14 percent in after-hours trading.

Amazon did not disclose how many Kindle Fires or e-ink Kindles have been ordered, but in a good example of the company’s usual mathiness, CEO Jeff Bezos said, “In the the three weeks since launch, orders for electronic ink Kindles are double the previous launch. And based on what we’re seeing with Kindle Fire pre-orders, we’re increasing capacity and building millions more than we’d already planned.”

Amazon will release the Kindle Fire on November 15, and two new Kindle touchscreen e-readers on November 21. Due to the release of those devices and the fact that the holidays are typically Amazon’s strongest sales period, analysts were watching closely for the company’s Q4 guidance. Amazon is expecting net sales between $16.45 billion and $18.65 billion for the next quarter–an increase of between 27 percent and 44 percent over Q4 2010–and operating income of between -$200 million and $250 million, or a decline between 142 percent and 47 percent compared with this time last year.

In an investor note, Citigroup’s Mark Mahaney wrote, “We don’t view these results as thesis-changing. AMZN’s spending seems clearly elective/discretionary/offensive against very large market opportunities. But we are surprised that the Q4 revenue guide isn’t more robust….Are they not including Fire shipments?” In investor and media calls following the earnings, Amazon said it is indeed including Fire shipments in its Q4 guidance.

CFO Tom Szkutak said the company’s spending is necessary because of its heavy growth and reiterated that Amazon has not seen such strong growth since 2000, something it also mentioned in its Q2 earnings.

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