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Amazon's Profit Plunges 73%

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Re: Amazon's Profit Plunges 73%

#71

Post by [deleted] »

polymatter wrote: post #63
holdenk wrote: post #27

Earlier quoted context omitted.

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 ref…

[deleted]

Re: Amazon's Profit Plunges 73%

#72

Post by tomkarlo »

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.

That's the point - we're talking about their Q3 profit. The parent post suggested that the Kindle Fire might have depressed Q3 profits, which is impossible given that it's not being sold yet.

FYI, once it's sold, it's neither an asset or a liability - it's no longer reflected on the company's balance sheet. The revenue and COGS show up on the income statement, and may also be reflected on the cash flow statement. But they're off the balance sheet.

Re: Amazon's Profit Plunges 73%

#73

Post by tomkarlo »

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?

They haven't sold any yet.

Re: Amazon's Profit Plunges 73%

#74

Post by glassx »

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…

By selling Kindles, Amazon can secure their place in the ebook market. Without it they'd be just another player. And they probably get better margins on ebooks, since distribution (bandwidth) is cheap.

Re: Amazon's Profit Plunges 73%

#75

Post by uxp »

ilamont wrote: post #64
pg_bot wrote: post #62

Earlier quoted context omitted.

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...

If I also remember correctly, the Wii was the first modern console (post NES, I assume) that sold at a profit, which was a measly $6.

http://www.joystiq.com/2008/12/01/forbes-nintendo-making-6-p...

Re: Amazon's Profit Plunges 73%

#76

Post by Game_Ender »

awj wrote: post #36
jrockway wrote: post #32

Earlier quoted context omitted.

They should do more for less, like magically store all 8 billion items they have in stock in the back of my car or something. Warehouses housing wares. How extravagant. Where's the innovation. (And to answer my sarcastic comment, the innovation is "order from your suppliers and have them ship directly to the customer, then you don't need warehouses". But the reason people pay Amazon's prices is because the item shows…

> Investors shouldn't be allowed to invest until they've purchased at least one product from Amazon. Seriously. My wife gets Amazon Prime for free through school. Within the first month I was looking for the best opportunity to buy stock. The service is quite literally amazing, and handing it out free to students is just damn genius. That's just one small thing on top of all the other things they do really well at.

I will second this. The free student prime has moved purchase of Amazon Prime from the "it seems cool but not worth category" to "must have" for me. You get things that you would normally have to run all over town to get with minimal effort. It's a huge time saver.

Re: Amazon's Profit Plunges 73%

#77

Post by nandemo »

beedogs wrote: post #26

God, investors are idiotic. Amazon spends money to upgrade its infrastructure, stock price plunges 12 percent . Rational!

Stock prices adjust to news. If this plunge was higher than expected, then it's news, and the stock price falls. It doesn't necessarily imply the investors disapprove of Amazon's management.

Re: Amazon's Profit Plunges 73%

#78

Post by joelhooks »

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…

And when they (we) are in store they break out the Amazon app, scan barcodes and have items shipped next day at a sizable discount over the store cost + sales tax.

Re: Amazon's Profit Plunges 73%

#79

Post by gujk »

ceejayoz wrote: post #47
jsz0 wrote: post #44

Earlier quoted context omitted.

My understanding is Apple doesn't make all that much money off the iTunes Store using a similar model. Does it really work for digital media? (besides console games)

Apple doesn't use a similar model, they use the exact opposite model. They sell content at minimal profit to enhance the ecosystem for their devices, which they make a very tidy profit on.

Maybe for music, but is that still true for the App Store?

Re: Amazon's Profit Plunges 73%

#80

Post by gujk »

ilamont wrote: post #64
pg_bot wrote: post #62

Earlier quoted context omitted.

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...

Sony's problem there was that the PS had very expensive parts, so they had a harder choice to make on pricing to be competitive.

Nintendo, meanwhile, couldn't keep Wii in stock for more than half a day until something like 2 years after launch, so they could have raised the price about $100 and not lost a sale

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