|Amazon Stock Rating Report (AMZN) Rating and Financial Analysis|
(Amazon earnings article updated with Amazon stock movement and comments of Amazon CEO Jeff Bezos, as well as additional commentary.) NEW YORK ( TheStreet) -- Amazon ( AMZN) reported second-quarter earnings that significantly missed expectations, sending shares on a tizzy. Since the Internet retailer released results after-the-bell Thursday, shares of Amazon have plunged 8.4%, currently changing hands at $109.87.
Still, Amazon fell short of expectations not because consumers aren't shopping, but due to management's own decision to up infrastructure and marketing spending. Market costs for Amazon jumped 5% to $211 million, contributing to a decline in operating margin to 4.1% from 5.5%, and no doubt leading to the massive sell off in the stock. Amazon's investment plans going forward are also heavier than expected. The company is adding 13 fulfillment centers this year and hired 2,200 people during the quarter. Looking ahead, Amazon now expects third-quarter revenue in the range of $6.9 billion to $7.63 billion, meaning it could fall short of analysts' estimates of $7.15 billion. Amazon is also predicting operating income between $210 million and $310 million, which would imply margins of 3% to 4%. Wall Street is looking for a margin rate of 5%.
Amazon is mostly focusing on the marketing of its Kindle e-reader, which faces growing competition from Apple's ( AAPL) iPad, and the impending launch of a similar device by Google ( GOOG). So far, Amazon has been able to retain its dominance in the e-reader market. Earlier this week, the company said that, since the price cuts, Kindle sales have more than tripled, but did not provide an exact number on how many of the devices have been sold. Amazon slashed its price on the device last month by $70 to $189, after Barnes & Noble ( BKS) ignited a price war when it cut the price of its Nook device. Amazon's e-books have also outpaced physical books for the first time. "Amazon.com customers now purchase more Kindle books than hardcover books -- astonishing when you consider that we've been selling hardcover books for 15 years, and Kindle books for 33 months," CEO Jeff Bezos said in a statement. The company also said on Thursday that it snagged an exclusive deal with Wylie Agency for e-editions of 20th century novels. Regardless, analysts are worried that Amazon may be losing its market share in the sector. Apple ( AAPL)announced earlier in the week that it shipped 3.27 million iPads since the product launched in April, which would surpass analysts' estimates for the Kindle. Susquehanna Financial analyst Marianne Wolk estimates an installed base of about 3 million for the Kindle. "We see uncertainty in terms of Amazon's e-book market share as the selection and pricing advantages of today dissipate in 2011, allowing Apple's iBookstore, Google Editions and others to gain momentum," Susquehanna Financial analyst Marianne Wolk wrote in a note.
During the second quarter, Amazon earned $207 million, or 45 cents a share, a 45% spike from $142 million, or 32 cents, in the year-ago period. Analysts were calling for a profit of 54 cents. Revenue surged 41% to $6.57, higher than the $6.54 billion Wall Street forecast. Sales were led by electronics and other general merchandise, which increased 69% to $3.5 billion.
-- Reported by Jeanine Poggi in New York. Follow TheStreet.com on Twitter and become a fan on Facebook.