Amazon profits plunge

AMAZON.COM Inc, the world’s largest internet retailer, reported a plunge in third-quarter profit after it ramped up spending on new products such as the Kindle Fire tablet. The shares tumbled in late trading.

Net income fell to $63 million, or 14 cents a share, from $231m, or 51c, a year earlier, the Seattle-based company said today in a statement. That compared with 24c predicted by analysts on average, according to Bloomberg data. Net sales climbed to $10.9 billion, in line with estimates.

Amazon is sacrificing profit margins in search of sales volume and market-share gains against companies such as Apple Inc. The company is selling its Kindle Fire tablet for as low as $199, less than half the price of Apple’s cheapest iPad. Chief Executive Officer Jeff Bezos is counting on sales of music, books, movies and merchandise on the tablet to make up for selling the product at a loss — estimated by IHS Inc to be about $10 per device.

“Amazon has the lowest operating margin and the highest valuation in our technology company coverage,” Colin Gillis, an analyst at BGC Partners LP who rates the stock a “sell,” said in a note today. “The company is not likely to achieve material leverage off its revenue growth as costs associated with investments into its digital platforms build.”

The online retailer’s shares have gained 26% in 2011 and reached a record of $246.71 this month, pressuring on Amazon to deliver results. The shares fell 4.4% to $227.15 at the close today in New York.

The company forecast an operating loss of as much as $200m in the fourth quarter, with sales of $16.5bn to $18.7bn.