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Amazon profits slump after heavy Kindle investment
26.10.11 | Lisa Campbell
Amazon’s profits have dropped by 73% in its third quarter, with the company's investment in its Kindle e-readers blamed for the slump.
In the three months to 30th September, net income fell from $231m (£144.4m) to $63m (£39.4m) year on year. Sales rose by 44% to $10.88bn (£6.8bn), in comparison to $7.56bn (£4.7bn) in 2010. In its international arm, including sites in the UK, Germany, Japan, France, China, Italy and Spain, the company reported sales were $4.94bn (£3.1bn), up 44% from third quarter 2010.
Following the release of the financial results, shares in Amazon fell 14.25% to $194.77 (£121.75). Analysts put the slump in profits down to investment in its new Kindle devices, Fire and Touch. However, Amazon was gloomy about the months ahead, suggesting it could make between a $200m (£125.0m) loss and $250m (£156.3m) profit in its fourth financial quarter. Evercore Partners analyst Ken Sena told Reuters: "We're not seeing the investment pay off yet, but I think investors are impatient as to how long will it take before you will start to see this pay off." He added, "When are we going to start to see some signs?"
In the UK, David Nicholls entered the top 10 Amazon bestsellers chart twice for his book One Day (Hodder), with the physical version entering as the second highest bestseller in the last three months and his Kindle book entering as the fourth besteller. However, Nicholls' title is the only physical book to enter Amazon UK’s top 10 bestselling list. Other authors in the top 10 with Kindle book sales include Penny Feeny with That Summer in Ischia (Tindal Street Press), which was Amazon UK’s third highest selling product; Neil White with Cold Kill (Avon) who entered in fourth position; and Elizabeth Haynes with Into the Darkest Corner (Myriad Editions), Amazon UK’s eighth bestselling product in the last three months. Its highest seller was the Kindle 3G with Wi-Fi.
The business said it released 61 titles through its Amazon Publishing programme during its third quarter.
Jeff Bezos, founder and c.e.o. of Amazon.com, said: "September 28th was the biggest order day ever for Kindle, even bigger than previous holiday peak days—we introduced Kindle Fire for $199 (£124.38), Kindle Touch 3G for $149 (£93.13), Kindle Touch for $99 (£61.88), and our all new Kindle for only $79 (£49.38).”
He added: “In the three weeks since launch, orders for electronic ink Kindles are double the previous launch. And based on what we're seeing with Kindle Fire pre-orders, we're increasing capacity and building millions more than we'd already planned."
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Plenty to digest here following a very tame interview with az.co.uk ceo on this morning's R5 "Wake Up To Money" - az are investing in infrastructure (new depot at Hemel Hempstead, 4000 new positions...that would be far less than the UK jobs lost in manufacturing so far this month).
In the meantime, as a side issue there is an OFT report into Amazon/Book Depository takeover which is running in overtime, overtime....report put back and put back...latest delivery date of Monday October 24th has passed without any comment.
I'm not sure how it works with trade publishers but in the STM sector we all know that Amazon (.co.uk at least) is working on tiny margins - hence the tiny profits they have reported.
There are many examples of Amazon selling books at, or even below, cost. Their gameplan must be to drive their competitors out of business and then sell books at decent prices and thus increase their margin and profits.
You got it - that's the gameplan - and publishers are complicit.
As I said, I can't speak for trade publishers but in academic and professional in general and STM in particular, I don't think most publishers are giving beneficial terms to Amazon.
I obviously don't know what discount all STM publishers are giving to Amazon but they don't get better terms from us than we give to other booksellers and wholesalers - I know we're not uncommon in this.
There is, and always has been, a case for Amazon to be given LESS discount than bricks and mortar booksellers. It would be interesting if Penguin, for example, said to Amazon '40% discount is your limit' - but they need to do this quickly before it's too late, and more booksellers close down.
it is somehwat of an urban myth that trade publishers have been complicit with Amazon in destroying the terrestial market for their books.
I have a very strong relationship with many publishers - at executive and director level- and know that the publishers are horrified at the manner of discounting on Amazon which is not fuelled by either their discount terms or co-op promo.
Amazon is even not supplied directly by these publishers for some titles, nevetheless Amazon still heavily discounts the titles as a loss leader.
The OFT (with their AZ/BookDepository takeover investigations) have obviously had considerable difficulty unravelling the complex accounting and marketing structure which is Amazon ; pity that this was not attempted ten years ago, but in those days Borders and Waterstone's were contented AZ bedfellows !!
If I were George Osborne, I would make online sales of books liable for VAT. I am very proud of the fact that I am not George Osborne, and am never likely to be, so I don't suppose this very sensible proposal will ever enacted.
(will ever BE enacted, is what I meant to say)
I see that the OFT have today cleared the takeover of The Book Depository by Amazon.
On the basis that:
"Amazon would face strong post-merger competition from bricks and mortar booksellers"
Who are they kidding??
More tax, Strontium? Are you serious? We are struggling in an economic downturn, and all pay far too much tax as it is.
People spend their own money more intelligently than the government does.
Clive, global corporate dictat did not necessarily cause contentment in all quarters.
A questionable assertion, Lexi. Nobody likes taxes, but the idea that if taxation were abolished, people would send cheques to the Treasury to pay for things like the armed forces or reducing the deficit is somewhat optimistic. They would spend their extra money as they do now, on foreign holidays, flat screen TVs, and booze.
Ought governments to discriminate between one retailer and another? In practice, they already do: newsagents are exempt from Sunday Trading laws, and adult stores (I believe) are more heavily taxed than charity shops. Bookshops, of course, benefit from the lack of VAT on their products. In all these cases, someone in government, the gentleman in Whitehall if you prefer, has determined that society as a whole gains from these interventions.
I'm not saying bookshops should ever be subsidised - if they cannot pay their way, then of course they must close - but it would be sad indeed if in ten years time the only decent selection of literature on the high street was to be found in a handful of independents and one or two upmarket chains. Putting VAT on internet sales, if nothing else, would at least level the playing field.
Thank God you are not George Osborne!
Our little independent used to sell online, would these sales be subject to VAT? even the click-and-collect ones? or are you just proposing an 'Amazon tax'? [Lets tax the most successful business in the history of books, which opened the market to the masses and cut the cost of reading to all] How about taxing books sold in supermarkets? Lets tax everything we don't like, preferably without thinking about the consequences!
There is a difference between abolishing taxation and the notion that individuals cannot spend money more wisely than government.
As a former member of a local authority, and a former employee of the Audit Commission, I can assure you that even in the odd corners that I worked in, there was HUGE, HUGE levels of waste, and a complete failure to recognise where the money was coming from. Sadly, even this government is failing to address the core problems.
With regard to the last para - "..it would be sad indeed if in ten years time the only decent selection of literature on the high street was to be found in a handful of independents and one or two upmarket chains.." isn't that how it has always been? Its just that the handful is getting smaller.
Luckily Amazon will be getting a boost from World Book Night as their facebook page directs browsers to Amazon Kindle editions of the titles selected.
Madness. Writers (most) are being screwed left right and centre.
Plenty to digest here following a very tame interview with az.co.uk ceo on this morning's R5 "Wake Up To Money" - az are investing in infrastructure (new depot at Hemel Hempstead, 4000 new positions...that would be far less than the UK jobs lost in manufacturing so far this month).
In the meantime, as a side issue there is an OFT report into Amazon/Book Depository takeover which is running in overtime, overtime....report put back and put back...latest delivery date of Monday October 24th has passed without any comment.
I'm not sure how it works with trade publishers but in the STM sector we all know that Amazon (.co.uk at least) is working on tiny margins - hence the tiny profits they have reported.
There are many examples of Amazon selling books at, or even below, cost. Their gameplan must be to drive their competitors out of business and then sell books at decent prices and thus increase their margin and profits.
You got it - that's the gameplan - and publishers are complicit.
As I said, I can't speak for trade publishers but in academic and professional in general and STM in particular, I don't think most publishers are giving beneficial terms to Amazon.
I obviously don't know what discount all STM publishers are giving to Amazon but they don't get better terms from us than we give to other booksellers and wholesalers - I know we're not uncommon in this.
it is somehwat of an urban myth that trade publishers have been complicit with Amazon in destroying the terrestial market for their books.
I have a very strong relationship with many publishers - at executive and director level- and know that the publishers are horrified at the manner of discounting on Amazon which is not fuelled by either their discount terms or co-op promo.
Amazon is even not supplied directly by these publishers for some titles, nevetheless Amazon still heavily discounts the titles as a loss leader.
The OFT (with their AZ/BookDepository takeover investigations) have obviously had considerable difficulty unravelling the complex accounting and marketing structure which is Amazon ; pity that this was not attempted ten years ago, but in those days Borders and Waterstone's were contented AZ bedfellows !!
Clive, global corporate dictat did not necessarily cause contentment in all quarters.
There is, and always has been, a case for Amazon to be given LESS discount than bricks and mortar booksellers. It would be interesting if Penguin, for example, said to Amazon '40% discount is your limit' - but they need to do this quickly before it's too late, and more booksellers close down.
If I were George Osborne, I would make online sales of books liable for VAT. I am very proud of the fact that I am not George Osborne, and am never likely to be, so I don't suppose this very sensible proposal will ever enacted.
More tax, Strontium? Are you serious? We are struggling in an economic downturn, and all pay far too much tax as it is.
People spend their own money more intelligently than the government does.
A questionable assertion, Lexi. Nobody likes taxes, but the idea that if taxation were abolished, people would send cheques to the Treasury to pay for things like the armed forces or reducing the deficit is somewhat optimistic. They would spend their extra money as they do now, on foreign holidays, flat screen TVs, and booze.
Ought governments to discriminate between one retailer and another? In practice, they already do: newsagents are exempt from Sunday Trading laws, and adult stores (I believe) are more heavily taxed than charity shops. Bookshops, of course, benefit from the lack of VAT on their products. In all these cases, someone in government, the gentleman in Whitehall if you prefer, has determined that society as a whole gains from these interventions.
I'm not saying bookshops should ever be subsidised - if they cannot pay their way, then of course they must close - but it would be sad indeed if in ten years time the only decent selection of literature on the high street was to be found in a handful of independents and one or two upmarket chains. Putting VAT on internet sales, if nothing else, would at least level the playing field.
There is a difference between abolishing taxation and the notion that individuals cannot spend money more wisely than government.
As a former member of a local authority, and a former employee of the Audit Commission, I can assure you that even in the odd corners that I worked in, there was HUGE, HUGE levels of waste, and a complete failure to recognise where the money was coming from. Sadly, even this government is failing to address the core problems.
With regard to the last para - "..it would be sad indeed if in ten years time the only decent selection of literature on the high street was to be found in a handful of independents and one or two upmarket chains.." isn't that how it has always been? Its just that the handful is getting smaller.
Thank God you are not George Osborne!
Our little independent used to sell online, would these sales be subject to VAT? even the click-and-collect ones? or are you just proposing an 'Amazon tax'? [Lets tax the most successful business in the history of books, which opened the market to the masses and cut the cost of reading to all] How about taxing books sold in supermarkets? Lets tax everything we don't like, preferably without thinking about the consequences!
(will ever BE enacted, is what I meant to say)
I see that the OFT have today cleared the takeover of The Book Depository by Amazon.
On the basis that:
"Amazon would face strong post-merger competition from bricks and mortar booksellers"
Who are they kidding??
Luckily Amazon will be getting a boost from World Book Night as their facebook page directs browsers to Amazon Kindle editions of the titles selected.
Madness. Writers (most) are being screwed left right and centre.