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Amazon powers on with no profit in sight

11 February 2013

Amazon's fourth quarter results have just come in $1 billion (£632,62m) short of analysts' expectations, but because of a 55% increase in operating income to $405m (£256m), shares rose 6%.

There are however plenty of people who are beginning to wonder whether Amazon, with its ever-increasing sales and its wafer-thin margins, is ever going to make a profit. The giant online retailer has long ago moved on from books into mainstream retail and its slick service and ease of purchase has made it easy for consumers to buy a wider and wider range of products from the company.

Igor Greenwald, writing in Forbes, expresses scepticism about Amazon ever making a profit but says that it is not by any means running out of space for its particular growth plan:

'Will Amazon continue disrupting bricks-and-mortar merchants? Absolutely. Though it's already the dominant e-tailer, online sales still account for barely 5% of the U.S. total, and are still growing at least three times faster. So Amazon's revenue, currently up 23% year-over-year, may continue expanding nicely for a while.

But the runway will continue to shorten. The neighborhood booksellers are now largely gone, and the depleted competition in electronics may soon follow them into oblivion. Those low-hanging fruit have either already been picked or will be soon. To keep up the growth pace, Amazon will have to keep finding new markets to squeeze, be they in content streaming or electronic payments.'

The company has announced that print book sales are up 5% in the last quarter of the year - still a time when print sales are a major part of the gift market, and their share of ebook sales is growing fast, thanks to the Kindle. This effectively locks purchasers in to buying their ebooks through Amazon and has also become a major sales item in its own right for the company. Jeff Bezos spoke directly about their book business: "After 5 years, ebooks is a multi-billion dollar category for us and growing fast - up approximately 70 percent last year.'

Waterstones' results show the effect of this competition in the UK market, with the retailer going £40m ($63m) into the red last year, during which revenue fell 14% to £410.4m ($648m). The Christmas season showed a real improvement, but it's hard for any book chain competing with Amazon to feel confident about the future - or for anyone in the book trade to feel completely relaxed about their activities.