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Amazon says its drive for growth could see it slide into the red

Workers processing orders at the Amazon wearhouse in Dunfermline. Picture: Robert Perry

Workers processing orders at the Amazon wearhouse in Dunfermline. Picture: Robert Perry

Online retail giant Amazon has warned that the cost of its enthusiastic expansion could push it to a loss in the first quarter of the year.

The Seattle-based firm has stepped up its spending on “fulfilment centres” such as its one million square foot base in Dunfermline, and has also been promoting its Kindle electronic book reader by selling it for little or no profit.

In an update on Christmas trading, it said global sales increased by 35 per cent to $17.4 billion (£11bn) in the final quarter of last year, but its net profits fell 58 per cent to $177 million.

During the crucial nine weeks to 31 December, sales of Kindle e-reader devices increased by 177 per cent compared to the same period in 2010. The top of the range Kindle Fire topped amazon’s bestselling list.

Amazon has invested heavily in e-readers and hopes to cash in on sales of downloads for the devices. Some analysts believe it has sold the devices at a loss.

Chief financial officer Tom Szkutak said the company’s growth opportunities, including the e-reader business, were so attractive that they deserved heavy investment.

Szkutak said he was “very encouraged” by early spending habits of Kindle Fire owners, who are buying more digital content such as e-books, video, music and apps.

He added that Amazon will continue to add more content for its video services.

In the UK, Harry Potter films also featured on Amazon’s Christmas bestsellers list.

Christopher North, managing director of Amazon UK, said: “2011 marks the end of an era with the final two Harry Potter films and the complete collection of movies all featuring in the top ten bestsellers of the year. Harry Potter has been a constant fixture at the top of the charts for more than a decade and it could be a long time before there is a phenomenon quite like it again.”

Amazon forecasts first-quarter operating results ranging from a loss of $200m to a profit of $100m, on revenues of between of $12bn and $13.4bn, below Wall Street expectations.

Meanwhile, Facebook was last night preparing to submit paperwork to US regulators for a $5bn initial public offering (IPO) after reportedly selecting Morgan Stanley and four other bookrunners to handle the flotation.

The bookrunners chosen were said to be Goldman Sachs, Bank of America Merrill Lynch, Barclays Capital and JP Morgan, although the underwriting syndicate may be expanded later.

The preliminary filing sets the stage for a May flotation of the world’s largest social network that will dwarf almost any before it, including Google’s $2bn IPO. The $5bn figure is a preliminary target and could be ramped up in coming months in response to investor demand.

Morgan Stanley is thought to have been chosen for its experience in arranging major internet IPOs – including those of Groupon and Zynga.

 

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