uploads///Amazon International Operating Income

Amazon’s International Margins Are Under Pressure

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Jan. 31 2017, Updated 4:43 p.m. ET

Operating losses from international markets

Amazon.com (AMZN) continues to pump money into international markets—so much that its operating losses in these markets have widened over the past few quarters. The chart below shows how these losses in international markets for Amazon have grown from $121 million in 1Q16 to $541 million in 3Q16. But what specifically has been driving this trend?

Amazon opened a number of new fulfillment centers over the past few quarters in order to support its third-party sellers, who sell their products under the FBA (Fulfillment by Amazon) program. These sellers have started to play an important role in Amazon’s business, accounting for almost half of the paid units on Amazon’s website.

Amazon International Operating Income

But by opening up fulfillment centers at a fast rate, the company has had to incur the initial startup costs related to them, which not only consists of fixed costs but also variable costs related to training workers and transportation.

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Growth in fulfillment centers, India, and video content

Amazon has also continued to step up its investment in the Indian e-commerce market. In June 2016, the company announced that it would increase its capital commitment in India from $2 billion to $5 billion. Why? Amazon faces stiff competition from local players such as Flipkart and Snapdeal in India (EPI), and so the e-commerce giant has had to be willing to take operating losses in India just to gain market share.

At the same time, Amazon continues to be an aggressive player in the video content market. In December 2016, Amazon announced the launch of its Prime Video service in more than 200 countries around the world. Meanwhile, Amazon has been marketing its original content heavily in a strategy similar to that of Netflix (NFLX).

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