Question 6 Amazon profits fall on data investment By Barney Jopson in New York Published: April 26 2011 22:18 | Last updated: April 27 2011 00:51 Amazon, the world's largest online retailer, reported a 33 per cent fall in net income for the rst quarter as new investments in data storage and distribution eclipsed a rise in sales. The company had told investors to expect a drop in earnings, but the fall in net income to $201m from $299m was steeper then anticipated and Amazon warned of a further drop this quarter. Amazon's shares slid nearly 2 per cent in after-hours trading, having fallen 1.7 per cent in the run-up to the results report at the end of ofcial trading. Tom Szkutak, chief nancial ofcer, continued to champion Amazon's investment plans. But some analysts are concerned about Amazon's willingness to sacrice protability to fund its young \"cloud computing\" data storage business as well as new distribution centres for the physical goods it sells. Colin Sebastian, analyst at Lazard Capital Markets, said the company's 38 per cent revenue growth partly reected the investments that were squeezing its profits. "As long as they can maintain this level of revenue growth, investors will accept this level of margins,\" he said. \"The scenario that revenue growth slows and the pace of investment does not would be more concerning.\" For the current quarter, Amazon forecast that sales would increase by between 35 and 47 per cent from a year ago. But it predicted operating income would fall by as much as 65 per cent. As Amazon expands its infrastructure and operational capacity, Mr Szkutak said it would open at least nine new distribution centres this year, including ve outside North America. Its data storage division, Amazon Web Services, is a marked departure from selling goods online and allows clients to store data on its servers. The move into data storage opens up another competitive front with Apple and Google, but it still accounts forjust a small percentage of revenue. Amazon's full year sales of $34.2bn in 2010 were more than double the $14.8bn it reported three years previously in 200?. The Financial Times 26 April 2011 (Source: BBC On Jine or http://www.bbc.co.ukews/business-13343600, accessed 13 May 2011, extract only) I. How would you classify Amazon's investments in cloud computing and data storage? Why? ll. What factors/criteria might Amazon have included in the analysis of these investments? Ill. Are these qualitative or quantitative factors? Suggest how these factors/criteria might have been accounted for in the decision-model and decision-making process? [3 +6+5 = 14 marks] 8|Pagc