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Amazon is leaning on its secret weapon: spending more to earn more

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The giant is quadrupling investments

Amazon Holds News Conference Photo by David McNew/Getty Images

Amazon’s third-quarter earnings demonstrate that sales are way up, but that was to be expected. After all, this past quarter is the one when Amazon announced its acquisition of Whole Foods, challenged cities to offer up tax breaks and gifts in hopes of winning a bid to the company’s second headquarters, and also launched a slew of new Echo and Fire TV products. Amazon’s Prime Day, its second time throwing the big discounts holiday, was also bigger than ever in the quarter, stealing some of the Black Friday mania during the summer. And it doesn’t hurt that the profit machine that is Amazon Web Services, its cloud computing business, experienced a revenue surge, up 41.9 percent to $4.58 billion.

Amazon noted an uptick in net sales of 34 percent to $43.7 billion in the third quarter. Whole Foods contributed $1.3 billion to net sales, the company said, despite the grocery chain’s stalling financials prior to the Amazon merger. Following the acquisition, Amazon promised to cut avocado prices, driving more traffic to Whole Foods stores, and also touted its Echo devices in-store.

However, even as Amazon earns more, it’s also significantly increasing on its spending, a common move from a corporate juggernaut that likes to expand in a half dozen directions at once. Amazon’s profit decreased 40 percent to $347 million, compared to $575 million the year prior, as a result of an increase in operating expenses, particularly in the company’s costliest areas like fulfillment. The net cash that Amazon is pouring into investments has nearly quadrupled year over year. Still, cash flow is healthy. The company’s operating cash flow increased 14 percent to $17.1 billion in the past twelve months.

It’s also worth noting that Amazon’s operating at a loss in international markets, as its operating expenses exceed net sales by $2.1 billion, although it’s in the black in North America. Following the company’s numbers announcement, Amazon’s stock price rose by over 7 percent in after hours.