Investing

Amazon's International Operation Bleeds Red Ink

Douglas A. McIntyre

Published: October 27, 2017 6:40 am

Last Updated: January 12, 2020 6:45 am

Amazon.com Inc. (NASDAQ: AMZN) posted such strong earnings that its shares soared. Much of the improvement was due to its industry-dominating Amazon Web Services cloud operation. Earnings were dragged down, however, by its troubled international operations.

Amazon announced revenue for the third quarter grew from $32.7 billion in the period a year ago to $43.7 billion. Operating income fell from $575 million last year to $347 million, a sign Amazon continues to invest in at least some of its businesses.

Amazon Web Services revenue went from $3.2 billion to $4.6 billion, and operating income rose from $861 million to $1.17 billion. The division is only 11% of sales but carries almost all of Amazon’s operating income

Amazon’s tradition domestic e-commerce operation posted revenue of $25.4 billion, up from $18.9 billion a year ago. Operating income fell from $255 million to $112 million.

The problems in its international arm were all too obvious. Revenue was $13.7 billion, up from $10.6 billion in the third quarter of 2016. But operating loss was $936 million, compared to $541 million last year. It was also Amazon’s slowest growing division.

Amazon offered a seemingly endless list of its accomplishments in the third quarter. International operations were not mentioned at all.

What is wrong with the international business? Amazon won’t tell. It is a good bet that future earnings will be dragged down by international, but the tech giant won’t say. Its forecast:

Fourth Quarter 2017 Guidance

Net sales are expected to be between $56.0 billion and $60.5 billion, or to grow between 28% and 38% compared with fourth quarter 2016. This guidance includes approximately 1,000 basis points of impact to our year-over-year growth rate from Whole Foods Market. This guidance also anticipates a favorable impact of approximately $1.2 billion or 270 basis points from foreign exchange rates.

Operating income is expected to be between $300 million and $1.65 billion, compared with $1.3 billion in fourth quarter 2016.

For certain, however, without the drag from international the operating income would be better.