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Amazon earnings: selling a tablet at $50 less than cost is…
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Amazon up 4% and Apple up only 1.4%
People are sick…
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It really comes down to the net margins that Amazon will have on the content that they are going to be selling for the Fire. If they are losing $50 for every Fire, and if net margins are 10%, then they need to sell $500 of content for every Fire sold to break even. If their net margins are 50%, then they need to sell only $100 of content. That is if they are losing $50 for every Fire sold.
With eBooks selling for about $15 a pop and first run movies selling for about the same amount, $100 is a much more doable target in a reasonable period of time that $500 which would probably take several years for Amazon to break even.
As others have mentioned, I have never understood why Amazon has always been given such a rich valuation. Someone has got to believe that their margins and profits are going to be getting better but I haven’t really seen it. The bubble for Amazon stock, IMO, is pretty amazing. Good company, just don’t like the stock price that it is given.
Neal
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qualitywte
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It really comes down to the net margins that Amazon will have on the content that they are going to be selling for the Fire. If they are losing $50 for every Fire, and if net margins are 10%, then they need to sell $500 of content for every Fire sold to break even. If their net margins are 50%, then they need to sell only $100 of content. That is if they are losing $50 for every Fire sold.
With eBooks selling for about $15 a pop and first run movies selling for about the same amount, $100 is a much more doable target in a reasonable period of time that $500 which would probably take several years for Amazon to break even.
As others have mentioned, I have never understood why Amazon has always been given such a rich valuation. Someone has got to believe that their margins and profits are going to be getting better but I haven’t really seen it. The bubble for Amazon stock, IMO, is pretty amazing. Good company, just don’t like the stock price that it is given.
Neal
More than likely, some percentage of Fire customers will not buy anything or will buy very little from Amazon. Therefore, you would have to double those sales figures to make up for those that don’t fall for the “stickiness” gimmick. By the way, what IS that gimmick? I mean, do they think most people are gullible enough to just buy a bunch of merchandise from them just because they got a cheap tablet?
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Amazon will compensate by selling millions of copies of the Steve Jobs biography - already got two emails that my order has been delayed due to demand
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danthemason
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just because they got a cheap tablet?
It’s a catalog. A high tech catalog. -
AndrewLing
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I’ve never been a fan of AMZN the stock even though it’s a great company. It’s market cap is comparable to Intel for heaven’s sake. Selling tablets at a loss has desperation written all over it. Much like Sony did when their PS3 came out in order to compete with XBOX and popularize bluray. That didn’t work out so well for them either. Healthy companies like Porche and BMW have no need to sell anything at a loss. Struggling companies like GM do.
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I’ve never been a fan of AMZN the stock even though it’s a great company. It’s market cap is comparable to Intel for heaven’s sake. Selling tablets at a loss has desperation written all over it. Much like Sony did when their PS3 came out in order to compete with XBOX and popularize bluray. That didn’t work out so well for them either. Healthy companies like Porche and BMW have no need to sell anything at a loss. Struggling companies like GM do.
IMHO the Kindle Fire compared to the iPad is like, a feature phone compared to the iPhone. Thet are not in the same league. The. Kindle is realily competing with the Nook. Both are e-readers with added features.
Amazon is a retailer with very low margins. They net about $2 for every $100 in sales. If they are really selling it at a $50 loss per unit, and sell 1,000,000 of them they will have to increase revenues by 2.5 billion dollars to offset the loss.
Someting doesn’t add up. They must know something I don’t know.
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The measure of the worth of a product is how much people are willing to pay for it, not how many people will buy it if the price is low enough.
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In my view Amazon is committing a terrible mistake not pricing Kindle Fire closer to break-even, unless of Kindle Fire IS priced close to break-even, in which case I say, that’s a fine business move.
Assuming the Kindle Fire is a loss leader, Apple has already shown that the way of selling media and apps is NOT one laden with profits. Apple is the world’s largest multimedia store, and despite the huge scale, Apple consistently says it operates at around break-even. How can Amazon somehow do significantly better?
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The Summer of AAPL is here. Enjoy it (responsibly) while it lasts.
AFB Night Owl Team™
Thanks, Steve. -
AndrewLing
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ok sorry I have a lot of free time this weekend so I was going deep into the board.
