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Amazon reports surprise Q2 loss as focus shifts to expansion

Amazon has reported a surprise second quarter loss as the online retailer focuses on investment in services at the expense of profit.

The company posted a loss of $7 million (£4.54 million), despite a 22 per cent rise in sales to $15.7 billion (£10.2 billion) for the April to June quarter. This compares to a $7 million (£4.54 million) profit in the same period last year.

Operating costs soared by 23 per cent as the company puts billions into expanding distribution warehouses and digital operations, including its new cloud service.

The loss, which equates to around $0.2 (1p) per share, was unexpected as many analysts had expected a profit of $0.05 (3p) or $0.06 (4p) a share.

Despite this, Amazon CEO Jeff Bezos said that investment in digital is already paying off. "This past quarter, our top 10 selling items worldwide were all digital products - Kindles, Kindle Fire HDs, accessories and digital content," he said.

Although the company's shares fell by 2 per cent in reaction to the news, investors seem happy to allow short term profits to suffer at the expense of expansion, particularly in fast developing markets such as China.

Tom Szkutak, Amazon's chief financial officer, told investors: "You should expect us to be in investment mode [in China] for some time."

It is also hoped the investment in warehouse and delivery infrastructure, allowing postage to anywhere in the US in two days, will provide a fast return.

Amazon expects net income for the current quarter will be $15.5 billion (£10.06 billion) to $17.2 billion (£11.17 billion). On average, analysts' had forecast $17 billion (£11.04 billion) in profits.

The news comes as Amazon UK this week scrapped free delivery for many items under £10 (opens in new tab), bringing in a minimum spend for the first time since October 2009.

Tomas is co-founder of Lucky Pilgrim, a team of journalists, photographers and art directors who connect brands to audiences through words, imagery and design. He was formerly editorial director at Chapel and managing editor at Courier magazine, and was a writer for ITProPortal as well as The Independent, EastLondonLines, The Sunday Times Magazine, and Croon.