Amazon blames lower profits on gaming 'slowdown'

CFO Tom Szkutak says its $16 million quarterly income drop is partially due to stagnant media sales on products like "video games and consoles."

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In early April, Amazon bolstered its video game catalog with a devoted Xbox Live section, which currently offers 114 products. However, these offerings weren't enough to buoy the online megaretailer's income, which dropped 10 percent in its second fiscal quarter compared to the same period last year. Speaking with the Wall Street Journal, Amazon CFO Tom Szkutak blamed the meager performance, in part, on what he called a "slowdown in video games and consoles."

Although Amazon's video game page may be in free fall, its sales still aren't.
Although Amazon's video game page may be in free fall, its sales still aren't.

"One weak spot was sales of media, including books and music, which were flat in North America," he said, referring to the company's 0 percent media sales growth figure in the second quarter of 2009 over last year, compared to a 25 percent increase from Q2 2008 to Q2 2007. "You're seeing an industry slowdown in video games and consoles."

Szkutak's comments come after a report by the NPD Group that found overall US retail sales of non-PC game software, hardware, and accessories shrank by 31 percent in June, down to $1.17 billion from $1.7 billion the prior year. The results were the worst monthly showing since the 41 percent drop-off in September 2000, exceeding the 20 percent decline that many pessimistic analysts were expecting this June.

"The first half of the year has been tough largely due to comparisons against a stellar first-half performance last year, but still, this level of decline is certainly going to cause some pain and reflection in the industry," said group analyst Anita Fraizer.

Although Amazon's media sales were stale, its quarterly net sales for all its products rose 14 percent over last year, from $4.06 billion to $4.65 billion. However, its net income sank from $158 million to $142 million in the same period. For the next fiscal quarter, Amazon predicts an operating income between $120 million and $210 million, or anywhere from a 22 percent drop to a 36 percent gain from the same interval in 2008. Last Wednesday, the retailer announced it would acquire the online footwear vendor Zappos.com for about $847 million, which the Wall Street Journal called Amazon's largest acquisition to date.

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