Amazon.com Inc. (NASDAQ:AMZN) shares fell early US trading after reporting a sharp fall in profits on the back of its rapid and costly expansion.
The online retail giant saw profit slump 77% to US$197mln in the three months to June, compared to the same period a year earlier. Expenses rose 28% to US$37.3bn as it expanded overseas and invested in new products and services.
But the expansion gave revenue a boost, rising 25% to US$38bn.
Last month, the company announced it was buying Whole Foods Market Inc. (NASDAQ:WFM) for US$13.7bn, pending regulatory approval.
Amazon has also been ploughing money into its Prime video content to help retain subscribers and lure in new customers. Subscription sales rose 51% to US$2.2bn.
Sales from Amazon Web Services, the biggest cloud-computing business in the world, jumped 42% to US$4.1bn.
READ: Amazon's Bezos becomes world's richest man as firm exceeds $500bn valuation
Shares initially surged in New York yesterday to make Amazon founder Jeff Bezos the world’s richest person, with a net worth of US$90.6bn, compared to Bill Gates’ US$90.1bn. However, Amazon’s share price fell in afternoon trading, putting Gates back on top.
Shares dropped 3.5% to US$1,009.35 each in early US trading.
Analysts positive on Amazon
Goldman Sachs analyst, Heath Terry, said: "We continue to believe that we are in the early stages of the shift of compute to the cloud and the transition of traditional retail online and that the market is underestimating the long-term financial impact of both to Amazon."
Terry added: "As Amazon continues to generate high cash returns on cash invested despite the growing scale of its investments … we believe growth acceleration like that we saw in 2Q is likely to continue."
Goldman maintained its 'buy' rating and target price of US$1,275.
JP Morgan repeated an 'overweight' rating and initiated a price target of US$1,175. "The overall story coming out of AMZN's 2Q print feels a lot like it did 3 months ago—accelerating growth, stepped-up investments, & lower near-term profitability," said JP Morgan's Doug Anmuth.
"Given accelerating growth and long runway in both retail and cloud—along w/AMZN's track record—we believe many investors will look beyond lower near-term profitability."
Morgan Stanley reiterated an 'overweight' rating and raised the price target to US$1,200 from US$1,150, giving a nod to Amazon's spending on adding fulfillment warehouses, buying more Prime video streaming content and building cloud computing data centres.
"We see these investment seeds and Amazon's strong execution history leading to continued faster than expected share gains," said Morgan Stanley's Brian Nowak.