Tuesday, November 6, 2012
Amazon At A Loss
Wall Street loves Amazon, banking on what it believes to be a bright future for the world’s largest online store. But for a leading-edge company that increased its sales by 27% to $13.8 billion in the third quarter to LOSE money ($274 million) seems ridiculous. How does such math add up to optimism in the stock market?
Amazon’s attributing its recent thin profit margins and now a quarterly loss on investments to building warehouses and manufacturing new Kindles. They have been saying for years that their low profits were due to the cut-throat pricing it uses to generate business. Is its attempt to undercut competitors with loss-leader promotions finally taking a toll on itself?
Amazon’s stock has soared over the years at a level not in proportion to its profitability. At some point that bubble bursts or Amazon starts making a real profit. The bigger question for the book industry is how it will work with Amazon: As a partner or competitor? Right now, it is both. If there was a way everyone can play together, the publishing industry could really take off.