Amazon profits fall as Kindle Fire sales soar

Posted on by Mike Evans

It’s a funny old world. Tonight Amazon announced a 58 percent fall in 2011 Q4 profits but a 35 percent increase in sales. Amazon stock fell over nine percent in after-hours trading.

The Kindle Fire has clearly been a huge success in terms of numbers, with independent estimates of up to six million units moved. But it is also evident that development costs have seriously dented profits. The Fire is a loss-leader, costing more to make than the selling price.  So it is to be hoped that all these expensively bought customers will buy lots of media to boost future earnings.

Contrast all this with last week’s Apple results where everything was on the up, and up, and up. Did I say up? Apple does nothing without making a very handsome profit. There are no loss-leaders in Cupertino.

Apple may be the Wunderkind of the tech world, but it is viewed less wonderfully by Wall Street. It operates on a miserable price/earnings ratio of 12.99. Amazon, in stark contrast, enjoys a stratospheric p/e of 102.5 (both figures from Yahoo Finance). 

To my untutored mind—I am certainly no Horace Dediu—this means that Wall Street sees nearly eight times more potential in Amazon than in Apple. If Apple’s performance were reflected in the stock price at Amazon levels, every single Apple share would be worth over $3,500. Tonight Apple closed at $456.48.

It’s a funny old world.

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