Might Be Running Light

| About:, Inc. (AMZN)
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There might be reasons to believe either (NASDAQ:AMZN) is running light on revenue, or saw itself burdened with excess Kindle Fire HD 8.9 inventory.

Why do I say so? Because is now running a promotion on its Kindle Fire HD 8.9 device, lopping off $50 from its price, bringing it down from $299 to $249.

Since this is the more expensive Kindle, it can produce a lot of revenue quickly, even if it can't pad the profit line. Each 1 million units of this Kindle would produce $249 million in revenues, thus changing's expected reported revenues of $22.2 billion for the quarter by more than 1%. It's a product that can move the revenue needle, and $50 is a significant discount.

Alternatively, this might mean that the Kindle Fire HD 8.9 is seeing an inventory glut. For to produce these devices competitively, it should have ordered significant amounts from its suppliers. Yet the Kindle Fire HD 8.9 has been languishing in the deep spots of's bestsellers' list. Even recently, already under the effect of this promotion, it's only up to No. 8 on that list. As I've shown in an earlier article, even the top spots of this list don't sell incredibly well. I estimated that could be selling at a 260,000/quarter pace for third spot on the list at one point. The eighth spot will be a fraction of that. Obviously, 100,000-200,000 would severely undercut the estimated sales pace for Kindle Fire HD 8.9 and lead to an inventory glut, which would explain the present discounting.

A Further Possible Impact

Even Apple's (NASDAQ:AAPL) iPad 3 cost $316 to make, and the Kindle Fire HD 8.9 is probably not much cheaper since the specs are similar. The CPU might be inferior, but on the other hand it's outsourced vs. Apple's in-house design -- so the ultimate cost shouldn't be too different. What this means is that the original $299 price is probably already "at cost," so a $50 coupon on it is probably all loss.

Now, per each 1 million units sold, $50 will thus mean $50 million in losses, perhaps $35 million or so after tax (if still pays any). $35 million on 460 million shares is close to $0.08 per share in EPS impact per each 1 million Kindle Fire HD 8.9 sold during this promotion. might save the revenue line but, again, doing so is going to punish the bottom line.

Conclusion is either running light on revenue and trying to save the quarter by discounting a high-volume, high-value device, or alternatively is sitting on an inventory glut of Kindle Fire HD 8.9s and trying to move it out the door. Either way, it isn't pretty. It especially isn't pretty for the one stock that's trading as if it belonged in some other solar system's stock market, with a TTM P/E of around 3,000, and a forward 2013 P/E of 143. At some point, reality will cut in half or worse.

Disclosure: I am short AMZN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.