It's quite funny how, in the face of so much counter-evidence, Amazon.com (NASDAQ:AMZN) bears continue to distort reality.
First, they relentlessly spread the meme that the company loses money every time it sells a Kindle Fire. Two problems exist here. One, a tear-down that puts the actual cost of the $199 device at $201.70 lacks reliability. While I do not question the honesty or expertise of IHS iSuppli, you cannot convince me that the firm knows, for certain, the particulars of the deals Amazon cuts with its suppliers. Two, the company likely will not "lose" money on Kindle Fire. The point of the gadget is to drive core revenues. Because we'll never get specifics from Amazon on exactly how this shakes out, the echo chamber will keep reverberating.
Second, AMZN critics float the false notion that pressure to the company's bottom line comes because of a flawed business model that gives everything from tablets to shipping away for free or at little cost. Here again, uncritical, surface-scratch analyses and wishful thinking, not too mention an inane rebuke of Jeff Bezos, take on lives of their own.
Surely, AMZN bears will just cast off the company's apparent $95 million investment in a Chinese distribution center as folly. When Apple (NASDAQ:AAPL) spends money in China, AMZN bears refer to the expenditure as an "investment" that will help the company solidify its growth and dominance in the country. When Amazon does it, Jeff Bezos is throwing million dollar bills into the Shanghai smog from atop a sweatshop where old ladies spend 60 hours a week soldering wires. It's akin to brushing off a quarterly miss from Apple, while yelling the sky is falling after Amazon warns. And we all know the psycho-emotional source for all of those bad Kindle Fire reviews. But, I digress ...
But, wait, maybe I do not digress after all.
Apple spends millions to build giant buildings in North Carolina. It's just another chapter in the late Steve Jobs' plan to leave the world his estate. Issues aside, it's all good. Apple is an environmentally-friendly world-class citizen.
Amazon pours cash into local communities across the United States and the globe, but they're the bad guys because they follow tax laws and have always had the type of long-term vision responsible for making retailers like Best Buy (NYSE:BBY) and RadioShack (NYSE:RSH) look something just south of pathetic.
At least, Henry Blodget gets it:
Amazon is doing what many more American corporations could and should do: Balance the near-term "profit motive" with a more holistic mission of focusing on the long-term and serving customers, employees, shareholders and the community at large.
So very well-stated.
Meantime, Apple sits on billions in cash as it finds ways to convince people to upgrade from iPhone 4 to iPhone 4.0159.
People who read me on Seeking Alpha know that I love Apple as much as the next guy. They also know that I have never considered Amazon's move into music, video and the tablet space the firing of a competitive salvo at Apple. Jeff Bezos is too smart to fight a battle he clearly has no chance of winning.
I articulate things the way I have in this article because much of the Amazon hate that exists in the world does stem from Apple love. For whatever reason, the bears and most of the media want to put the two companies into this fierce head-to-head battle when such a thing could not be further from the way things really are. These two companies have a deep respect for one another and have no reason to get into strategic squabbles. Apple drives its core by building out is ecosystem. And Amazon does what it does to further its e-commerce dominance and crush brick-and-mortar retail, outside of Apple and the high-end luxury brands.
I also put things like I did in this article because, frankly, I am tired of people, for all intents and purposes, ignoring what the company says when it addresses these issues head-on and very publicly. I'm not one for posting really long quotes, but this one is worth your time. Here's what Amazon CFO Thomas J. Szkutak had to say on the company's last conference call:
We're seeing the best growth which we've seen since 2000, meaning in 2010 and so far over the past 12 months ending September. And so with this strong growth, we're investing in a lot of capacity and that's what we've been talking about over the past couple of quarters and that's what you're seeing in our Q3 results specifically. If you take a look at our operating expenses in Q3, as a percentage of revenue, you see - and if you compare that to Q2, as a percentage of revenue, you're seeing very similar trends for marketing and G&A. You're seeing a slight uptick in tech content. It's about 10 basis points and then you're seeing fulfillment up approximately 80 basis points. The reason why that's growing so much, as a percentage of revenue, is again the capacity that we've been talking about.
Many days ago, I've mentioned that we were - we had announced 15 new fulfillment centers this year that's on a basis of 52 from last year. And then we'd likely open one or two more. We are actually going to be opening 17 new fulfillment centers. And so you're seeing that impacting our fulfillment expense in Q3, as well as the bottom line in Q3. And we think about the economics of the Kindle business, we think about the totality.
We think of the lifetime value of those devices. So we're not just thinking about the economics of the device and the accessories. We're thinking about the content. We are selling quite a bit of Special Offers devices which includes ads. We're thinking about the advertisement and those Special Offers and those lifetime values. So those are the things certainly that are impacting, as well as investments in other areas impacting our Q4 guidance. But we feel very good about where we are right now and the opportunities that we have in front of us.
Now, are you going to call the man a liar? I think he's part of a genius vision that has proven the naysayers wrong, time and time again, for more than a decade.
Disclosure: I am long AAPL.