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Amazon writes down $170M on poor Fire phone sales; Says it’s still in investment mode

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Amazon is taking a $170 million writedown due to poor Fire Phone sales, Amazon CFO Tom Szkutak disclosed in the company’s earnings conference call for the quarter ended September 30, 2014.

Szkutak mentioned that this writedown was primarily related to the evaluation of Fire phone inventory and supplier commitment costs. Of this, $25 million is from the International markets and the remaining is from the North America region. At the end of Q3 2014, Amazon has around $83 million worth of unsold Fire phone inventory.

Frankly, this doesn’t come as a surprise considering the mediocre looks & specifications of Fire phone combined with unimpressive $199 contract pricing in an intensely competitive smartphone market.

To be fair, the phone did have interesting features like Firefly that enabled users to identify real-world items by scanning them with their Fire phone and of course purchase them from Amazon. It also offered an SDK for developers who wanted to integrate this feature into their apps.

Besides this, it also had gimmicky features like Dynamic perspective display that claimed to offer immersive 3D experience to users. The company also dropped the contract pricing of Fire Phone to a mere $0.99 last month. But, even this doesn’t seem to have attracted customers to opt for Fire Phone.

Other operational highlights

–  Amazon extended its payment solution ‘Pay with Amazon‘ to third party sellers in India. Amazon mentions that this service enables merchants to essentially outsource financial transactions to the company and focus only on sourcing and managing inventory. This service is currently live on e-commerce stores like Babyoye, Shopyourworld, SapnaOnline and others.

– Amazon signed a partnership with Microsoft to exclusively offer its entire range of its Interactive Entertainment Business (IEB) products. This includes Xbox One, Xbox 360, Kinect, Xbox Live, Xbox Accessories, and all Microsoft-published Xbox game titles. It also exclusively offered products like Coke Zero, Blackberry Passport and Micromax’s Android One phone ‘Canvas A1’.

– Coinciding with Xbox One launch, Amazon also unveiled Release Day Delivery servicewhich allows customers to pre-order products and get them delivered on the day of their release.

– Earlier this month, Amazon also tied-up with Future Group to sell products from Future Group’s portfolio of 40 fashion brands that claims to offer more than 10,000 unique styles. These includes brands like Lee Cooper, Converse, Indigo Nation, Scullers and Jealous 21 among others.

Amazon Financials

This writedown along with an increase in operating expenditure resulted in Amazon posting an operating loss of $544 for the quarter, a significant increase from $25 million loss in the same quarter last year. The net loss also shot up to $437 million for the quarter, from $41 million in the same quarter last year.

Szkutak attributed the increase in operating expenditure to additional investments on its technology infrastructure including Amazon Web Services and adding additional capacity to Amazon’s fulfillment operations.

Net sales: Amazon’s net sales however grew by 20% year-on-year (YoY) to $20.58 billion for the quarter, from $17.1 billion in the same quarter last year. Revenues from International markets (which includes India) grew by 14% YoY to $7.71 billion for the quarter, from $6.79 billion the same quarter last year.

Amazon net sales

Amazon International results

Elaborating on this, Szkutak mentions that they are still in “investment mode” purely “because of the opportunities that we had in front of us”. He said the focus is not on individual margins as of now, rather they are focusing on using their capital wisely so that they get good returns on invested capital over time. “We know that we have to be very selective about which opportunities we pursue and — but we’re encouraged by the opportunities that we have.”

The company’s recent major investments include a $2 billion investment to grow its Indian operations and improve the customer & seller experience in the country. This was interestingly just a day after its competitor Flipkart had raised $1 billion investment. Later in the month, it had also acquired video game livestreaming service Twitch for around $970 million. To finance their investments, Amazon had also secured a $2 billion credit facility from Bank of America last month.

Szkutak noted that the return on invested capital was 6% for the quarter, double of 3% in the same quarter last year and flat from 6% in the previous quarter.

Electronics and other general merchandise sales: Revenues from the sale of Electronics and other general merchandise in International markets was at $5.16 billion, up 20% from $4.32 billion in the same quarter last year. The overall revenues from the segment was at $13.95 billion for the quarter, up 26% from $11.05 billion in the same quarter last year.

Amazon electronics sales revenues

Media revenues: Revenues from Media sales in International markets was at $2.51 billion for the quarter, up 5% from $2.42 billion in the same quarter last year. The overall revenues from the segment was at $5.24 billion for the quarter, up 4% from $5.03 billion in the same quarter last year.

Amazon Media revenues

Cash and cash equivalents: The total cash and cash equivalents is at $5.26 billion for the quarter, down from $8.66 billion as of December 31, 2013.

DownloadPress ReleasePresentation | Conference call

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