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Amazon's Profit Plunges 73%

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Re: Amazon's Profit Plunges 73%

#61

Post by danielharan »

chugger wrote: post #58
brc wrote: post #42

Earlier quoted context omitted.

A tried and true strategy. That has worked for (in no particular order) : ATM's, Printers, Razors, Mobile Phones, Gaming Platforms and probably even cars in some cases. If Sony had cottoned onto this strategy, Beta would have been the worldwide video standard and they would have been paid back massively in royalties. Shifting hardware at a loss to lock in consumers is the oldest trick in the book. Nowhere is it more…

Its a tried and true strategy if there wasnt a better strategy. Amazon doesnt need to create their own hardware. They are doing just fine selling Ebooks via their iPad and android apps. Low overhead, more profit. Selling their own hardware does not provide any value add to the customers, all it does it reduce their margins and profit. People already buy ebooks via their apps. People are talking like this is a good mo…

More profit selling for iPad and android apps is not a given. People that buy Kindles probably end up buying more books -- and there's also more lock-in.

Re: Amazon's Profit Plunges 73%

#62

Post by pg_bot »

ilamont wrote: post #56
brc wrote: post #42

Earlier quoted context omitted.

A tried and true strategy. That has worked for (in no particular order) : ATM's, Printers, Razors, Mobile Phones, Gaming Platforms and probably even cars in some cases. If Sony had cottoned onto this strategy, Beta would have been the worldwide video standard and they would have been paid back massively in royalties. Shifting hardware at a loss to lock in consumers is the oldest trick in the book. Nowhere is it more…

It amazes me that they didn't do this for the PS3. Many tablet are making the same mistakes today.

The PS3 is the poster child for this type of tactic, at their beginning they sold for $300 less than their cost of goods.[1] Their failure has nothing to do with locking in a market due to price. [1]http://www.gamasutra.com/php-bin/news_index.php?story=11740

Re: Amazon's Profit Plunges 73%

#63

Post by polymatter »

holdenk wrote: post #27
tomkarlo wrote: post #21

Earlier quoted context omitted.

I'm pretty sure they wouldn't, since that's how GAAP accounting works. For revenues and costs directly related to a product, you don't book them until the product is shipped to a customer.

Its been awhile since I took an accounting class, but lets say my cost of producing the kindle fire was $20 and my expected ability to sell it was at $15, I would book my kindle inventory at $15 on the books even though its acquisition cost was higher (i.e. you put it on your books at the lower of acquisition cost and expected disposal value). This has only been part a GAAP since 1990 though.

I'm not sure why you're being downmodded, you're absolutely correct.

IAS 2[1] states "inventories shall be measured at the lower of cost and net realizable value", which is exactly what you said.

IAS is the International Accounting Standards, which is what pretty much all accounts meet. Inventories mean stock. Net realizable value means what you can get for them. US GAAP covers this as well (though I can't find a reference right now).

Showing your inventory at $20 per unit, when you can only expect to make $15 per unit selling them, would be overestimating the value of your stock. A competent auditor wouldn't sign off on your accounts like that.

[1] (http://www.icaew.com/en/library/subject-gateways/accounting-...)

(from a trainee accountant)

Re: Amazon's Profit Plunges 73%

#64

Post by ilamont »

pg_bot wrote: post #62
ilamont wrote: post #56

Earlier quoted context omitted.

It amazes me that they didn't do this for the PS3. Many tablet are making the same mistakes today.

The PS3 is the poster child for this type of tactic, at their beginning they sold for $300 less than their cost of goods.[1] Their failure has nothing to do with locking in a market due to price. [1] http://www.gamasutra.com/php-bin/news_index.php?story=11740

It wasn't enough. They may have been selling at a loss, but the introductory PS3 prices were at least twice as much as the Wii. When Sony began to cut prices, sales jumped. A $100 price cut in 2009 doubled sales: http://kotaku.com/5356885/npd-ps3-sales-gain-ground-on-price...

Re: Amazon's Profit Plunges 73%

#66

Post by nobody3141 »

chugger wrote: post #35
nobody3141 wrote: post #23

Earlier quoted context omitted.

Crazy moves like "heavy spending on warehouses, data centers and digital-content offerings" An online store buying stock and building infrastructure !!!!! Crazy , they should be borrowing money and paying themselves bonuses before going bust - that's what Wall St wants

How about the $50 Amazon is losing per Kindle Fire sold?

Given that it's specs aren't much more than $100 chinese Android 2.3 tablets I doubt they are losing anything. Especially since they don't have a retailer taking 30%

Their policy for the other Kindles was to recover the R&D initially and then sell them at not much more than cost.

Re: Amazon's Profit Plunges 73%

#67

Post by polymatter »

dkokelley wrote: post #31

To restate the obvious, this is a case of reinvesting in the company's future growth. Net profits (distributable to shareholders) are diminished when a company reinvests, so yes, "profits" are down. However, a more meaningful metric is net sales - cost of goods sold. Amazon had to make a choice of what to do with their meaningful profits (what's sold - what it cost to create, sell, and support it). They could give it…

Spending on day-to-day expenses is termed revenue expenditure. This shows up in the income statement and affects profits. Spending on future investment is termed capital expenditure. This is not shown on the income statement and does not affect profits. (It's on the balance sheet instead)

Eg. Buying a new warehouse does not decrease profits (but it will of course affect your cash). Blue-sky R&D is also recorded as an asset (and depreciated as normal).

At least, that's what I was taught as a trainee accountant. Though I've learnt in practice that things are reclassified for tax purposes. Lower profits mean lower tax after all.

Re: Amazon's Profit Plunges 73%

#68

Post by gruseom »

srdev wrote: post #51
wisty wrote: post #50

Earlier quoted context omitted.

From all I've heard, Bezos is more "crazy like a fox" than Jobs was. There's a lot to hate about Amazon. Apparently, it's a totally caustic work environment, that's only making money because Bezos is such a brilliant strategist. Like A/B testing everything, before it was popular. Like telling everyone they need web APIs for everything they do, and will be fired if they use non-web APIs to other team's apps. Way to sh…

As with most big companies, whether its a caustic environment or not really depends on which team you're working for. The culture instilled by your manager or manager's manager is more powerful than the corporate culture as a whole.

more powerful than the corporate culture as a whole

My experience has been the opposite, that a deviant subculture can't survive for long and is eventually rejected by the host.

Re: Amazon's Profit Plunges 73%

#69

Post by eupharis »

ippisl wrote: post #49
chugger wrote: post #35

Earlier quoted context omitted.

How about the $50 Amazon is losing per Kindle Fire sold?

This number is meaningless(and probably wrong) if you don't know the extra profits it would generate, and what's at stake here. Some estimates(read:guesses) think that 50% of kindle users will subscribe to to amazon prime. Prime users are extremely loyal to amazon, do all their online shopping in amazon and use brick and mortar shops much less than before signing with prime.They tend to buy 3x-4x than before, in amaz…

That 50% number seems high to me. Seems chicken-and-egg. Do they buy a Kindle then subscribe to Amazon Prime or do they use Amazon a lot and thus get both a Kindle and Amazon Prime?

And like most chicken-and-egg questions, the answer is both and neither.

As someone who has spent far too much time puttering around brick-and-mortar stores recently, before walking away in disgust and just buying it on Amazon, I can't help but think Amazon is just spending to widen an already vast competitive edge.

This isn't apples versus oranges. This is sailboat versus steamboat.

Re: Amazon's Profit Plunges 73%

#70

Post by [deleted] »

rbranson wrote: post #29
tomkarlo wrote: post #21

Earlier quoted context omitted.

I'm pretty sure they wouldn't, since that's how GAAP accounting works. For revenues and costs directly related to a product, you don't book them until the product is shipped to a customer.

Not exactly. While you are correct that their profits would not necessarily be impacted, it's because the purchased goods or raw materials are booked as inventory (asset), and not part of COGS (liability). The cost of constructing the new Kindles is still booked, just under a different part of the book. Once the devices are sold, the amount changes from an asset to a liability.

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