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Here's Amazon's explanation for its earnings flop

JP Mangalindan
·Chief Tech Correspondent
Amazon chalked it up third-quarter its earnings miss to aggressively building out new fulfillment centers and investing heavily in video. Source: Reuters
Amazon chalked it up third-quarter its earnings miss to aggressively building out new fulfillment centers and investing heavily in video. Source: Reuters

Amazon’s third-quarter earnings missed Wall Street estimates, sending shares down 5% in after-hours trading. But according to the Seattle-based e-commerce giant, there’s a very good reason why it whiffed on profits.

On an earnings conference call Thursday, Amazon Chief Financial Officer Brian Olsavsky explained Amazon (AMZN) has invested heavily in two key areas: fulfillment centers and video.

Indeed, during Amazon’s third quarter, the company built 18 fulfillment centers — the very same warehouses where many orders are filled. For the entire calendar year, Olsavsky said he expected Amazon to finish building 26 fulfillment centers in all.

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“The last year we added double-digit fulfillment centers was 2012,” Olsavsky pointed out on the call.

Indeed, it’s worth noting that when Amazon funnels its revenues into aggressively building out more fulfillment centers, its profits have taken a hit time and again.

The other key area Amazon has invested heavily in? Video. Although Amazon never specifically breaks out just how many people use Prime, its popular loyalty rewards program, Consumer Intelligence Research Partners estimated in June that there were roughly 63 million users.

Video, in the form an ever-expanding selection of licensed content and original content, has been key to helping drive Prime memberships and retaining those users. But original content in particular doesn’t come cheap. Amazon did not disclose on the earnings call how much it’s pouring into video, but its competitor Netflix (NFLX) plans on spending $6 billion in cash on original content throughout 2016.

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JP Mangalindan is a senior correspondent for Yahoo Finance covering the intersection of tech and business. Follow him on Twitter or Facebook.

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