Amazon's Stock Takes a Beating on Steep Q3 Earnings Drop (Updated)

Company attributed the profit drop to costs associated with the launch of Kindle Fire

Amazon fell well short of earnings expectations in its third quarter, and investors quickly punished the company's stock in after-hours trading.

While the street estimated earnings per share of $0.24 — already less than half what Amazon logged in last year's third quarter — Amazon came in at $0.14 for the three-month period ended Sept. 30. This was the third time in the past six frames it has fallen short of Wall Street forecasts, according to FactSet.

The initial projections were low because Amazon has been expanding its business, most notably with the upcoming launch of its first tablet, the Kindle Fire. The company's income plunged 73 percent to $63 million.

On the company's earnings call, Chief Financial Officer Tom Szkutak said those new expenditures were the reason for Amazon's lower profit margins.

"We're investing in a number of diffeent areas," Szkutak said. "We're investing to support retail growth, the fast-growing [Amazon Web Services] business, infrastrucutre to support the retail business. We're investing in the Kindle and digtal business."

The Amazon release touts robust sales figures for its third quarter and anticipates that wil continue when the Kindle Fire officially launches.

But the company's share price is down 12 percent in after hours trading due to changes in the guidance for the fourth quarter. While projected income guidance had pegged $669 million as a midpoint, the new projection centers around $25 million.

Given that the income guidance ranges from negative $200 million to $250 million, that means Amazon is considering the possiblity of a fourth quarter loss.

Does that mean the company's aggressive hardware pricing is undercutting its sales?

Szkutak said that Amazon is more concerned with the "lifetime value" of Kindle sales, meaning that increases in retail sales are expected to outweigh any losses from the physical Kindle product.

"When we think about the economics of the Kindle business, we think about that toality, the lifetime value of those devices," Szkutak said. "We're not just thinking about the economics of device and acessories but the content."

Revenue numbers missed the mark as well, but not by as much. It generated $10.88 billion in the third quarter, whereas analysts estimated $10.93 billion. For its fourth quarter, guidance shifted from $18.05 billion to $17.5 billion (the midpoint of the $16.4 billion to $18.6 billion range).