Losses Jump at Amazon, as Investments Pile Up

The chickens are not coming home to roost at Amazon just yet, but they are checking the flight schedule to Seattle.

Three months ago, Amazon was expected to lose 7 cents a share in the third quarter. After the retailer warned that it was investing so heavily in so many things, analysts pushed their loss projections up aggressively to 74 cents a share.

Even that was not enough. After the market closed Thursday, Amazon reported that it lost 95 cents a share. There was other disappointing news, too: Revenue came in $260 million less than analysts’ projections, and the company said it might lose money again in the fourth quarter, which in the old days was when retailers made all their profit for the year.

Even revenue growth, Amazon’s powerhouse, is fading a bit. The company said revenue would rise between 7 percent and 18 percent in the fourth quarter. In the fourth quarter of 2013, revenue rose 20 percent from 2012.

Amazon’s story for several years has been that it is growing furiously, investing heavily and postponing profits until the halcyon days just around the corner when it will sell all things to all people all the time. That took the company stock on a wild ride, pushing it up to $400 a share early this year.

But Wall Street has been questioning those assumptions in recent months, and those questions forcefully surfaced again after the earnings report. The stock fell 10.7 percent to $279.75, shaving about $15 billion off the company’s valuation.

The results also indicated that the company’s take-no-prisoners attitude toward its suppliers might be catching up with it.

During the third quarter, Amazon was engaged in a highly public scrap with Hachette, the fourth-largest book publisher, over pricing of electronic books. Amazon is discouraging sales of Hachette books as a way to gain leverage in the confrontation. That in turn has provoked protests from authors and negative publicity for Amazon.

That unfavorable publicity could be having an effect. One particularly weak segment for Amazon in the third quarter was North America media sales, which means books, movies and music. It increased a mere 4.8 percent from 2013.

That was the slowest growth for the category in more than five years and a sharp slowdown from the 13.4 percent increase in the second quarter, said Colin Gillis, an analyst with BGC Partners.
Amazon’s chief financial officer, Thomas J. Szkutak, said in a conference call with analysts after the earnings were released that a shift to renting textbooks rather than buying them and a strong 2013 quarter were responsible for the drop. But Mr. Gillis was unconvinced.
“This was a violent deceleration in growth,” he said. “The controversy with the publisher likely also contributed to the slowdown.”

During the call, the analysts were a bit more restive than usual, questioning when the long-promised payoff for Amazon’s heavy spending would come true. “When things don’t go as anticipated,” one asked, “what’s the process for determining whether to plow ahead or turn back?”

Mr. Szkutak answered that there were “things that go great, and things that don’t go as well as others.”

Here are some of the things that went well. Amazon’s tablet line was refreshed during the quarter to enthusiastic reviews. The dark comedy series “Transparent,” an original production for the Prime membership club, got good notices. Fire TV, introduced in the spring, has turned into a popular streaming box. The grocery delivery service expanded to Brooklyn. Amazon bought Twitch, a popular streaming site, to bolster its gaming opportunities.

On the other hand, the third quarter was marred by the disastrous reception of the Fire phone, Amazon’s long-awaited and much promoted entry into the smartphone market. A marketing survey of 500 Amazon customers could not find any who reported owning a Fire. A great many of the reviews on Amazon’s own site give the Fire the lowest possible rating.

A $200 price cut last month briefly pushed the phone up on Amazon’s list of top-selling electronic products, but it quickly fell off again. Thousands of employees spent years developing the phone. It is a rare case of Amazon completely misjudging the appeal of a new product.
Mr. Szkutak said Amazon had $83 million worth of inventory of the phone at the end of the quarter. That should last until the sun goes dim.

Michael Pachter of Wedbush Securities was a mild dissenter on Amazon before the earnings came out, citing “a variety of customer experience enhancements” that will soak up potential profits. These enhancements include a streaming music service recently introduced by Amazon. It is free for Amazon Prime members.
Spending on video and music content will total $2 billion this year and $2.5 billion next year, Mr. Pachter wrote.

Mr. Szkutak said the free content was doing its job, with customers who used the streaming video feature renewing at higher rates and buying more physical goods.

But if the executive sounded one theme during the call, it was that even Amazon realizes there are limits.
“We’ve certainly been in several years now what I would call an investment mode,” Mr. Szkutak said. “There is still lots of opportunity in front of us, but we know we have to be very selective about the opportunities we pursue.”

For nearly every retailer, including Amazon, the fourth quarter is the biggest. As usual, Amazon gave a wide range for its guidance, saying it might lose as much as $570 million and make as much as $430 million. In 2013, it made $510 million in the fourth quarter.

“I think that the potential for a loss in the fourth quarter is what is freaking people out,” Mr. Pachter said. “It is inconceivable that Amazon would lose money during the holidays, at least to someone who bought the stock above $300.”

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London's Tate Modern


London's famed modern art museum is housed in a former oil-fired power plant on the banks of the River Thames.

Built in two stages between 1947 and 1963, the power plant featured a massive turbine hall over 100 feet high and nearly 500 feet long -- as well as a towering smoke stack in the center.

The building was nearly dormant from 1981 until work on the museum began in the late 1990s. The turbine hall was transformed into a grand entrance and display area -- its vastness often showcasing large pieces of art "to jaw-dropping effect," as Time Out London put it. The boiler rooms became the galleries. It opened in 2000, and is now one of the top three tourist attractions in the U.K.
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Yahoo profit soars following the Alibaba IPO

The Web giant's profit soared in the third quarter, after earning $6.3 billion from selling part of its stake in Alibaba (BABA, Tech30), the Chinese e-commerce giant. Alibaba debuted last month on the New York Stock Exchange in the largest IPO in Wall Street history.

Yahoo (YAHOO, Tech30), whose stock had been buoyed by the pre-IPO hype, has already committed to returning at least half of that money to shareholders.

Yet the company's core advertising business has been unimpressive in recent years, putting pressure on CEO Marissa Mayer to prove that Yahoo can be more than just an Alibaba proxy for investors. A manager of the activist hedge fund Starboard Value recently called for the company to merge with AOL (AOL, Tech30).
On Tuesday, Yahoo might have shown just enough to keep investors at bay -- at least for three more months. Yahoo's third-quarter earnings -- excluding the benefits of the Alibaba sale -- came in well ahead of expectations, and shares rose 3.5% in after-hours trading.

Yahoo's remaining Alibaba stake is worth approximately $34 billion. The company will pay $3.3 billion in taxes on its recent sale of shares, and going forward, Mayer said Yahoo has "the best tax experts in the country working intensively on structures to maximize the value for shareholders of our remaining stake."
Related: China is the real winner from the Alibaba IPO
Excluding Alibaba and other one-time items, Yahoo said it earned 52 cents per share last quarter, well ahead of Wall Street analysts' median estimate of 30 cents, according to a survey conducted by Thomson Reuters.
Yahoo's sales, grew 1% to $1.1 billion, slightly ahead of analysts' expectations. The company also reported a solid 6% increase in search revenue, but sales of the more lucrative banner and video ads fell by 5%.

It's not a lot of growth -- but it might put the Yahoo-AOL merger rumors to rest for the time being. The merger speculation has been around for years -- pretty much since AOL was spun off from CNNMoney parent company Time Warner (TWX) in 2009. The chatter picked up steam once Mayer joined Yahoo from Google since AOL CEO Tim Armstrong is also a Google veteran.
Both AOL and Yahoo have had a tough time competing against Google (GOOGL, Tech30), Facebook (FB, Tech30) and Twitter (TWTR, Tech30) in the battle for online ad dollars over the past few years.
Meanwhile, Yahoo has scooped up a number of start-ups on Mayer's watch, most notably blogging platform Tumblr, which it purchased last year for $1.1 billion. More recently, Yahoo has been rumored to be in talks for a small stake in Snapchat.
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Apple unveils new iPads, releases OS X Yosemite

Apple  unveiled new editions of the iPad and iPad Mini at an event in California on Thursday, where it also announced that its new Apple Pay system will launch on Monday, Oct. 20.
The new tablets -- the iPad Air 2 and iPad Mini -- both come with TouchID fingerprint sensors, which previously were only available on the iPhone. You can use the TouchID to make purchases online with Apple Pay, though it won't work at cash registers in stores the way the new iPhones do.
Related: Apple Pay is launching Monday

The Air 2 is just 6.1 millimeters thick, 18% smaller than the previous iPad Air. It's also got a souped-up processor, improved Retina display and a camera that takes panoramic photos up to 43 megapixels.
Both of the new iPads will be available for preorder on Friday and will ship by the end of next week. They're available in gold in addition to the traditional silver and dark gray.
The Air 2 starts at $499 for the 16-gigabyte, WiFi-only version, while the same version of the Mini 3 goes for $399.
The 64-gig Air 2 is $599, while the 128-gig version is $699; for an additional $130, you can get a version in each of those sizes equipped with cellular data connectivity. Apple is also cutting prices for the older iPads.

See Apple's new iMac in :60
Apple also unveiled a new 27-inch iMac desktop computer that begins shipping today and goes for $2,499.
On the software side, Apple announced that its new operating system, OS X Yosemite, will be available for free to download in the App Store on Thursday. The latest update to its mobile software, iOS 8.1, will be available Monday.
Yosemite got a big design update, making the interface for Macs look much more iPhone- and iPad-like. It comes with a revamped "spotlight" function that searches both the Mac and the Web.
There's also the new iCloud Drive, a cloud storage feature that syncs all Mac folders across every Mac, iPhone or Windows PC that a user owns.
Related: FBI director says iPhones shield pedophiles from cops
The "continuity" function ensures that your various Apple devices are aware of one another, so you can pick up on one where you left off on another -- for example, starting a Web browsing session on your iPad and then picking it up later on your laptop. It also lets you make calls or send texts from your computer.
The updated iOS will support Apple Pay and brings back the Camera Roll. The new iCloud Photo Library feature allows you to sync your images across devices.
Apple released its iOS 8 software last month, though the rollout was hobbled by the delay of its new HealthKit platform and problems with a software update that left some users unable to place calls or use their fingerprint readers.
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