Amazon Sells Dollars for $1.01

The old joke about Amazon’s (NASDAQ:AMZN) business model when the company was in its infancy started off by saying they were essentially selling dollars for ninety cents.  Which would prompt the question, “So, how will they make any money?”

“Volume.”

Ba-dum-bum.  (“I’ll be here all week.”).

Well, the more things change, the more they revert to the mean.  The internet retail giant posted 4th quarter earnings that were closer to the above joke than anyone holding the stock would like to consider.  Net income fell from $16 million ($0.38/share) in 2010 to just $177 million ($0.91/share).  Sales rose 35% but, obviously, so did costs.

After more than a decade of growth, the company is still operating on razor thin margins, 1.5%, to expand its customer base.  The Kindle Fire was sold as a loss-leader (dollars for $0.90) and they sold a lot of them.

Revenue from 3rd party sales has risen over time and while they are higher margin transactions, they come with little revenue.

The company guided that the 1st quarter may produce a loss of as much as $100 million. This earnings report wiped out nearly all of 2011′s gains in the stock price in after hours trading on Tuesday, with the stock down 11%.

Have no fear, though, The Bernank has pledged a ton of liquidity to offset an imploding credit market and the U.S. Government will hand out a record amount of money through its various welfare systems.  That should be enough to boost Amazon’s numbers in the future.  Of course, those dollars will only be worth $0.90, but hey, why quibble over the details.

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Tom Luongo

About Tom Luongo

Tom Luongo is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

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