Amazon’s International Operation Bleeds Red Ink

By Douglas A. McIntyre Updated Jan 12, 6:45AM EST · Published Oct 27, 6:40AM EDT

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Amazon’s International Operation Bleeds Red Ink — © Thinkstock

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.

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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.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.