Third-quarter profits at Amazon have dropped 73%, largely because of investment in the Kindle and Kindle Fire. Kindles are known to be sold cheaply in order draw in media consumers. This is in direct contrast to Apples’s policy of making a handsome profit on everything it sells, right from launch. A few apps and music tracks are merely icing on the cake. There are no loss leaders at your local Apple Store.
Amazon’s operating margin is only 4% compared with Apple’s 31% and rising. Again in marked contrast, Amazon trades at 119.5 times earnings, compared with Apple’s 14.4 times, according to data compiled by Bloomberg. On these figures, the markets believe Amazon is worth eight times more than Apple. If they applied the same logic to Apple’s prospects, Apple shares would be worth over $3,000 each. Scary.
The $199 price of the Amazon Fire knocked the socks off Wall Street and the tech world, yet the company will make a loss on every device it sells. It is banking on buyers stoking their Fires with hundreds, if not thousands of dollars’ worth of Amazon media.