Big rise in costs dents Amazon Q3 results

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Big rise in costs dents Amazon Q3 results

Billy MacInnes
Investment in the Kindle Fire and further expansion has dented Amazon's third quarter profits which declined 73% to $63m on an increase in the company's costs of almost 50%.

The big surge in sales, fulfilment (Amazon is adding 17 new distribution centres this year), marketing, technology and content costs took the shine off a 44% increase in revenues to $10.88bn.

Amazon CEO Jeff Bezos chose to highlight the response to the company's Kindle Fire announcement in his statement accompanying the results, claiming that since the launch, pre-orders had been so high the company had increased capacity and was "building millions more than we'd already planned".

In a follow up conference call, transcribed by Seeking Alpha, CFO Thomas Szkutak focused on the "totality" of the Kindle business rather than the effect on margins of the device itself.

"We think of the lifetime value of those devices," he told analysts. "So we're not just thinking about the economics of the device and the accessories. We're thinking about the content."

The results also revealed that revenues from non-retail activities, including Amazon Web Services, rose 77% in North America to $370m but the contribution from the international operation was only $37m. 

Overall, AWS represented 4% of Amazon's total sales. The core electronics and other general merchandise operation accounted for 58% of sales, up from 53% in 2010. Media sales declined by 44% to 38%.

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