Amazon back in ‘investment mode’

Amazon.com Inc. will spend big in the coming months on warehouses, movies, gadgets and growth into India, renewing investor concerns that chief executive officer Jeff Bezos cares more about generating revenue far in the future than turning a profit now.

The company will double-down on its delivery system that gets products quickly into the hands of its customers. It will keep investing in original movies and shows to encourage people to buy Amazon Prime memberships, which makes them loyal shoppers. It will enhance its hot-selling Echo voice-activated personal assistant to gain a presence in homes. And it will keep pushing into India, which it sees as a vast frontier for e-com- merce growth.

All those initiatives will crimp profits. Operating income in the current quarter will be $250 million (U.S.), to $900 million less than a year ago, even though revenue is forecast to increase as much as 23 per cent to $35.8 billion.

“When you see revenue go up and earnings go down, it spooks people,” said Michael Pachter, an analyst at Wedbush Securities. “It’s called negative leverage and the street hates it.”

The spending outlook took the shine off profit in the holiday quarter that beat analysts’ estimates. Net income was $749 million, or $1.54 a share, the Seattle-based company said Thursday in a statement. Analysts estimated profit of $1.36 a share.

Investors had high expectations for the fourth quarter, driving Amazon’s stock up more than 10 per cent to $839.95 in the month before Thursday’s earnings announcement.

People shouldn’t be surprised — Amazon’s expenses have eaten up sales often as the company built itself into the world’s biggest retailer, said Josh Olson, an analyst at Edward Jones & Co. “They’re in investment mode again,” which means earnings volatility in 2017, Olson added.

Amazon spent $5.7 billion storing, packing and delivering online orders in its busy holiday quarter, up 26 per cent from a year earlier. Technology and content spending increased 27 per cent to $4.5 billion.

Revenue increased 22 per cent to $43.7 billion in the fourth quarter compared with analysts’ estimates of $44.7 billion.