Amazon.com Inc. reported a steep jump in quarterly expenses and gave a disappointing profit outlook, blunting its momentum as the e-commerce giant prepares to enter the grocery store business by buying Whole Foods Market Inc.
The results and forecast show the world’s biggest online retailer is preparing for stepped up competition from rival Wal-Mart Stores Inc. and cloud-computing challengers Microsoft Corp. and Alphabet Inc.
Investors have put increasing faith in Chief Executive Officer Jeff Bezos to keep the company growing by entering new categories such as groceries, appliances and furniture and expanding abroad. Their confidence has sent the stock up 39 percent this year and was unfazed by the announcement that Amazon would spend $13.7 billion for Whole Foods, the company’s biggest-ever acquisition. But the support took a turn in extended trading after Thursday’s results were reported, with shares falling as much as 4.3 percent to $1,001.80.
Second-quarter expenses increased 28 percent to $37.3 billion. Sales gained 25 percent to $38 billion, the Seattle-based company said in a statement. Net income declined to $197 million, or 40 cents a share, from $857 million, or $1.78 a share, a year earlier. Analysts estimated profit of $1.42 a share on revenue of $37.2 billion, according to data compiled by Bloomberg.
“Spending is always a concern with Amazon, but investors eventually give Amazon a pass because Amazon invests in growth opportunities,” said Victor Anthony, an analyst at Aegis Capital Corp.
The company is expanding into India and Australia, speeding up delivery times to as little as an hour on select products, adding new skills and devices for its voice-activated Alexa platform and producing original movies and shows.
Amazon projected the current quarter may produce from an operating loss of $400 million to a profit of $300 million on net sales of $39.25 billion to $41.75 billion. Analysts estimated operating income of $863.5 million on $40 billion in sales. The company reported operating income of $575 million on sales of $32.7 billion in the third quarter a year ago.
The forecast excludes the deal for Whole Foods, where Amazon is betting it can replicate its online selling success. With 460 stores across the U.S., the acquisition is a major push into the $800 billion grocery category dominated by Wal-Mart, which has more than 26 percent of the market. The upscale grocery-store chain on Wednesday reported improving results in the second quarter, with sales declining less than analysts expected.
Amazon dominates e-commerce in the U.S. with its $99-a-year Amazon Prime subscription, which includes delivery discounts, music and video streaming and is intended to keep shoppers engaged with the website. The company had 85 million Prime subscribers in the U.S. as of June 30, an increase of 35 percent from a year earlier, according to Consumer Intelligence Research Partners. Amazon’s subscription services revenue, which is mostly from Prime memberships, increased 51 percent to $2.17 billion in the quarter -- faster than 49 percent in the previous quarter.
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