FORTUNE — Amazon’s earnings miss elicited a shrill response from the press: the e-commerce giant’s “big-spending ways” finally caught up with it. Even some of the more muted coverage has, more or less, characterized Amazon as a shopaholic or spendthrift of sorts. The company’s shares traded sharply lower on Wednesday, down nearly 10% a few minutes after the open.
Is Amazon (AMZN) really a reckless spender?
The company’s finance chief, Tom Szkutak, soberly described the reasons for its increased outlays: “We’re investing in a lot of capacity,” he said during a conference call with analysts, referring to new distribution facilities and server space for the video, music, e-books and other digital products the company plans to sell a lot more of in the near future.
Amazon is also gearing up for battle with Apple (AAPL) and other competitors — like Netflix (NFLX) and Spotify — with the new Kindle Fire, which is meant to take on the iPad and other tablets. When the Fire is released next month, it will sell for $199, which is at or near cost, by mos accounts, and which is $200 less than what Apple is charging for its cheapest iPad. That won’t help margins much in the short-term either, but the idea is to get as many Fires into people’s hands as possible so that Amazon can sell them all those digital products, as well as physical ones, since the Fire will be optimized as a mobile Amazon storefront.
The test of whether the investment is successful might largely come down to how many customers will accept — or even favor — the Fire’s smaller screen, which is 7 inches compared to the iPad’s 9.7-inch display.
Observers might differ over whether these investments are too large for what Amazon has planned. And they might differ over whether those plans are even wise to begin with. But characterizing the investments as evidence of a “spending habit” buys into the idea that Amazon’s third quarter of 2012 is more important than its third quarter of 2012, or of 2015, or of 2025, or of all the quarters in between. “We seek to be Earth’s most customer-centric company for three primary customer sets: consumer customers, seller customers and developer customers,” says the message on Amazon’s investor relations page. It doesn’t say: “We seek to beat analysts’ expectations every quarter.”
And in this case, it didn’t. Amazon’s profits fell 73%, to $63 million, or 14 cents a share. Analysts on average expected profits of about 24 cents. The company also warned that it might lose money in the fourth quarter. Colin Sebastian, an analyst with Robert W. Baird & Co., told Bloomberg News that if Amazon’s investments add to revenue but “don’t show a corresponding increase in earnings, investors start to scratch their heads.”
Sure. But should they be scratching yet? The company just introduced the Fire last month, and it won’t be released for another three weeks. There’s no way of even making a reasonable guess as to how the tablets might spur sales of either digital products or physical goods. Pre-orders of the Fire have been “extremely strong” was all Szkutak would say on Tuesday. Amazon said September 28, which the Fire and other new Kindle models were introduced, was its biggest order day ever for all flavors of the Kindle.
Similarly, the company is still building up its cloud computing services and over the past year it added 17 new fulfillment centers. All of this ate into profits, but presumably will add to them over time. Meanwhile customers are flocking to all flavors of the Kindle as e-books rapidly take the place of bound books.
Amazon’s sales grew by 44% in the quarter, in line with expectations. The last time the company posted a loss was exactly 10 years ago, during another period of expansion and heavy investment in infrastructure to nab market share — which is exactly what it did.