Amazon.com will increase spending on its money-losing online-retail unit in China to bolster sales in the largest Web market after the U...
Amazon.com will increase spending on its money-losing online-retail unit in China to bolster sales in the largest Web market after the U.S.
The Chinese Web site, renamed Joyo Amazon.cn on Tuesday, is the company’s fastest-growing by sales, Chief Executive Jeff Bezos told reporters in Beijing, without providing figures.
Seattle-based Amazon bought the Beijing-based unit, formerly Joyo.com, for $75 million in 2004.
“With something growing this fast and doing this well, as far as investment goes, we would like to double down,” Bezos said. “Double down is a term used in backgammon, which means when you like the odds, you want to increase the investment.”
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New products and markets helped Amazon, founded by Bezos in 1994, to raise earnings estimates for this year.
The company’s stock closed at a seven-year high Tuesday — up $3.23, or 4.6 percent, to $73.65 — after Brian Pitz, an analyst at Banc of America Securities, raised his price forecast to $79 from $62 a share.
The world’s biggest online retailer will increase spending in China on warehouses, bicycle couriers and inventory to boost sales of products including books, watches, electronics and makeup, Bezos said.
In the first quarter, Joyo ranked second in the local online retail market with a 12 percent share, behind Dangdang.com, with 18 percent, according to Beijing-based researcher Analysys International.
Sales in China’s electronic-commerce market may more than triple to 18.83 billion yuan ($2.5 billion) in 2010, from 5 billion yuan in 2006, the research firm said.
China is the only market where Amazon has kept the local brand in its official name because it is “established,” Bezos said.
Same-day deliveries are available in Beijing, Shanghai and Guangzhou, where Amazon’s warehouses are.
The company allows cash-on-delivery payment in more than 330 Chinese cities, where most packages are sent by bicycle to speed delivery in congested areas.
Customers use that payment method for more than 70 percent of orders because credit-card usage is not widespread, said Wang Hanhua, president of the Chinese unit. Amazon is “actively looking at how to take advantage” of rising credit-card use, Wang said.
Amazon’s warehousing space in China totals 35,000 square meters, about the size of four soccer fields.
Amazon took seven years to become profitable in the U.S. and typically takes between five and seven years in other markets, Bezos said.
“We are very fortunate because we have the resources to continue to invest until the right time that business has the scale it can be profitable and start being a cash contributor,” Bezos said.
“At the rate it keeps growing at, it may happen in a very acceptable time period” for the Chinese unit, he said, declining to be more specific.
Amazon on April 24 raised its 2007 operating income forecast to as much as $593 million from as much as $505 million after posting better-than-expected first-quarter earnings.
It also increased the sales projection for the year to as much as $14 billion from as much as $13.7 billion.
Banc of America’s Pitz said Tuesday that Amazon will boost earnings by slowing technology spending and selling more digital content.
Amazon said last month it will offer music downloads from record companies such as EMI Group this year without software that restricts how customers can play the songs.
U.S. and Canada sales accounted for 54 percent of Amazon’s total revenue in 2006, down from about 90 percent six to seven years ago, Bezos said.
Sales from international sites including China, France, Germany, Japan and the U.K. accounted for 46 percent, he said.
The company doesn’t break down revenue by countries.
Contributions from international sales will grow and outpace that from the U.S., Bezos said, without giving a time frame.
Amazon will be “practical and open minded” when considering more acquisitions in China, he said.