Amazon cuts costs for UK as growth slows
Amazon has extended its free shipping offer in Britain in an attempt to lessen the impact of an expected sharp slowdown in growth in the run-up to Christmas.
The company warned late on Tuesday that group sales were likely to miss Wall Street estimates in the crucial holiday trading period. Shares in the company fell 12% in morning trading in New York to $40.58. Amazon said growth this year would be between 13% and 24%, below the 31% recorded last year.
In Britain, Amazon is reducing the threshold for free shipping on orders from £19 to £15. Ryan Regan, managing director of Amazon in the UK, said the competitive environment was challenging on both sides of the Atlantic.
In Amazon's biggest market, the US, the company in February launched a service called Amazon Prime, allowing unlimited two-day shipping for an annual fee of $79 (£44). The cost of Amazon's offers, though, is eating into margins. Losses on shipping increased 15% to $47m during the third quarter.
Jeff Bezos, Amazon's founder and chief executive, admitted the service was expensive in the short term, but said it would add value in the long term. "We anticipate even higher enrolment rates as we get closer to the holidays," he said.
The company posted revenues of $1.86bn for the third quarter, up from $1.54bn in the previous year. The author JK Rowling helped out. Amazon sold 1.6m copies of her latest novel, Harry Potter and the Half-Blood Prince.
The warning on fourth-quarter sales prompted the bank Citigroup to lower its rating on Amazon to sell. The brokerage Piper Jaffray cut its price target from $44 to $40. Deutsche Bank downgraded Amazon to hold from buy and cut its share price target to $44 from $45.
The online retailer this year celebrated its tenth anniversary and in that time has expanded from its origins as a web-based bookseller to selling anything from clothing to car accessories. Some analysts have expressed concerns that there are few new areas left for expansion.
The warning "confirms what I've been thinking about revenue deceleration", said Martin Pyykkonen, an analyst at brokerage Hoefer & Arnett. "We see diminishing opportunities to add large and new product categories for future revenue growth."
Amazon said third-quarter profits fell to $30m from $54m a year earlier, chiefly due to a $40m bill to settle a patent lawsuit. The main driver of growth during the quarter was general merchandise and electronic goods, up 43% to $491m. Books, music and other media products still make up the bulk of Amazon sales. The category rose 20% to $1.1bn.
Sales in North America rose 28% to a little over $1bn during the third quarter. International sales, representing Britain, Germany, France, Japan and China were up 26% to $817m.
In August, Amazon said it would pay $40m to Soverain Software to settle allegations that it had infringed several of the company's patents on network sales systems and Internet server access control.
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