Amazon’s shares fell 10% last night, following news of its second quarter loss. Retail Week asks if it is time for Amazon to start focusing on profits?

Should Amazon be focusing on profits rather than investing in drones?

More than $16bn (£9.4bn) was shaved off its value when the online giant reported a net loss of $126m (£74.2m) in the second quarter to June 30.

The loss was Amazon’s largest in a quarter for almost two years, after it invested heavily in new technologies and logistics such as Prime Music, Sunday delivery and its first smartphone, Kindle Fire, during the quarter.

The resulting share plummet is a clear indication that investors are getting twitchy at the retailer’s continued reinvestment programme, at the expense of profits.

Planet Retail research director of ecommerce Malcolm Pinkerton says investors are right to be jittery. “The City has been very patient so far, but there have been rumbles of ‘where’s the profit?’ for some time now and some would say Amazon is starting to spread itself too thinly. It is time this innovation and investment started to pay off and I would hope to see profit by the first quarter of next year.”

“You can’t rely on drones to deliver a profit”

Malcolm Pinkerton

Pinkerton highlights Asos and Ocado as examples of businesses where investors are also getting uneasy, with major concerns over long-term sustainable growth. But Amazon is a business that seems to have been getting away with this strategy for some time now.

So, what is the online retailer trying to achieve with such an aggressive reinvestment programme? Pinkerton says it needs to compete with the likes of Google and eBay and rising competition from new US market entrants, such as Asian giant Alibaba, who are snapping at its coat tails for a slice of the pie.

In a rapidly changing market the retailer also can’t be seen to react to consumers, it needs to be one step ahead and investing in new technology and innovation is key to this. But, as Pinkerton explains: “Huge waves of investment and new products also need to pay dividend. You can’t rely on drones to deliver a profit.”

Long term, is Amazon following the right track? Pinkerton adds: “I’d be more concerned if Amazon wasn’t investing in the future, particularly when expanding into new markets. But you can’t blame investors for being worried; they’ve waited a long time. Amazon would be better placed to focus on what it has now and delivering on that, before launching anything else new.”