Amazon Slips

Fresh off the heels of Netflix's earnings report last night, Amazon (AMZN) posted their earnings today. Needless to say, they were very disappointing:

Amazon.com Inc. is still growing at a fast pace, but Wall Street's concerns about the online retailer's margins are likely to grow after the company posted a 73% drop in quarterly profit Tuesday.

Their margins are starting to kill them:

Sales during the third quarter ended in September rose 44% compared to the same period last year, Amazon said. That's roughly in line with expectations and consistent with growth seen in recent periods. But as Amazon has roped in more sales, it has spent heavily on the expansion of shipping centers and data infrastructure, undercutting margins.

Operating margin as a percentage of world-wide sales slipped to 0.7% in the third quarter, from 3.5% in the period last year, Amazon said.

This was one of the main concerns of investors when Amazon introduced the Kindle Fire. The stock tumbled 12.39% in after hours trading. Much of this due to the gloomy fourth quarter outlook:

"They're basically calling for a break-even fourth quarter," said Ken Sena, an analyst who covers Amazon for Evercore Partners, "which is definitely disconcerting for investors."

The culprit of the margin cut looks like it's the Kindle Fire:

Szkutak danced around the culprit a bit, but the Kindle Fire, priced at $199, is definitely deterring higher earnings estimates. Szkutak also touted the long-term plan for the Kindle Fire, describing it as a “premium device,” and that Amazon takes all of the economics of the Kindle business into account, ranging from the lifetime value to the content available on the tablets and e-readers.

Because the Kindle Fire is sold at a loss, it might be the case that it won't pay off for a while. The real money will be generated in apps, Amazon Prime, and the e-books. For the time being, it's concerning because Amazon is still a strong company. In addition, it compounds the fact that in a week, we've seen Apple, Netflix, and Amazon all miss targets.

The current tech climate is alarming.