Profits up at Amazon - but so are costs

Proof, perhaps, that in the recession shoppers are switching to online retailers who offer value for money as well as good service levels - Amazon have reported profits rose by 16% in the third quarter of the year to $231mn. The greatest growth has come from sales of the Kindle, their e-book reader, which has become Amazon’s fastest-selling and best-selling item. Sales of electronics and other general merchandise, which includes the Kindle, rose by 68% to $3.97bn, while revenue from books, CDs, DVDs and other media grew by a mere 14% to $3.35bn.

The company expect sales to rise even higher in the final three months of the year, as Christmas is expected to be their busiest season, but the news was not all good - while overall revenue rose by 39%, overall expenses rose by 40%, which sent the shares down by 5% by the end of yesterday’s trading - showing the importance of the ability to read the Income Statement and Balance Sheet in sufficient detail to use ratios and analyse the figures that lie behind the headlines. If customers move away from buying electronics as the effects of lower income and higher tax take hold, will Amazon be able to sustain their costs? Listen to the interview with the Managing Director on this morning’s Wake Up To Money to get his view.