Suman Chatterjee's  Instablog

Suman Chatterjee
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Financial analyst-writer for the last 5 years. Writes for a number of financial publications including The Street, Motley Fool and Seeking Alpha. Completed his Bachelors in Business Administration (Finance) with GPA 3.0, currently pursuing Chartered Accountancy from ICAI, India. Specializes in... More
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  • Amazon: I Am Not Concerned About Your Numbers 0 comments
    Feb 2, 2012 11:36 PM | about stocks: AAPL, BKS, EBAY, AMZN

    Investors are furious as to why Amazon (NASDAQ:AMZN) doesn't mention the "numbers" as Apple (NASDAQ:AAPL) does. Apple is pretty open about the fact that it sold 15.4 million iPads last quarter. So why would Amazon not reveal anything? How many Kindle Fires and how many Kindle e-readers were actually sold the last quarter?

    My question, is it really worth knowing the number? No, even Barnes & Noble Inc. (NYSE:BKS) doesn't reveal the numbers. If Barnes & Noble start revealing numbers and then stop it somehow, it would raise skepticism and negative awareness among the investors. Perhaps, this might be the reason why Amazon doesn't reveal numbers.

    Frankly speaking, knowing the number of Kindle products sold is not going to help us at all. Whether you sell one product or a million products is really not my concern. But how much margin you are being able to snag from the transaction is what I am worried about.

    And that's where Amazon is being rather disappointing to say the least.

    The popularity of Amazon lies in the low prices offered on the products. And that is precisely very problem with Amazon that it offers super-low prices. Even lower than it should.

    Why?

    Any company should know beforehand how to reach the break-even point (NYSE:BEP) at least. That's the point where the cost of production is equal to the selling price. And Amazon still seems to learn a lot about it.

    The average selling price of a Kindle tablet is $199. It's been estimated that the cost per Kindle Fire unit is around $202. We can add say, another $10 in marketing and promotional costs and $5 in shipping and delivery costs. The total cost of production totals to $217. So the operating loss per unit is around $18 per unit (around 9 percent loss margin).

    Now, as noted in an International Business Times article, the operating loss margin might be covered by cross-purchases or consistent purchases of digital and physical products and services over the next two quarters approximately. But doesn't that mean the company is creating a backlog somewhere? If some of the customers relinquish from Amazon purchases in the future, then what? What about the new loss accumulation? If you think from that perspective, it seems as if the company might not be able to show positive results ever for the time to come.

    Moreover, looking at the last quarterly financial chart of the company, the sales have gone up by 37% in North America (which is still lower than 45% in the same quarter last year) and 31% in the international circuits. You can safely conclude that the "numbers" have gone up over the last year. But does it improve the company's bottom-line? No, not at all. And that's what matters.

    To add to that, the biggest competitor of Amazon competitor in US, eBay Inc. (NASDAQ:EBAY) showed an operating margin of 20.37% last year, compared to the meager 1.79% of Amazon.

    I am not really concerned with the "quantity". After all, quality matters!

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: AAPL, BKS, EBAY, AMZN
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