5 ms·

Profit's are such a volatile metric. Amazon's been spending like crazy in the last few months on producing new Kindle products - most of which are being sold as

Profit's are such a volatile metric. Amazon's been spending like crazy in the last few months on producing new Kindle products - most of which are being sold as a loss leader in an effort to push book sales. Note that Amazon's overall Revenues are up 44% Less sensational, more nuts and bolts article http://www.marketwatch.com/story/amazoncom-announces-third-quarter-sales-up-44-to-1088-billion-introduced-four-new-kindle-devices-for-the-holidays-2011-10-25 http://www.marketwatch.com/story/amazoncom-announces-third-q...

icebraining 15y ago
Exactly. The drop is an investment and was expected.
philjr 15y ago
In addition to massive hiring
megablast 15y ago
On the other hand, revenues can mean nothing as well, since profits are what count, and huge revenues do not always translate, and could be a sign of a spending problem.
- gujk 15y ago
  It can be hard to tease out from the fancy accounting, but marginal profit (that is presumably sustainable) should be distinguished from new investment (which can be stopped if needed) and not just added together to get a profit number. That said, the buck should eventually stop at Free Cash Flow to prove shareholder value, which is then paid as dividend or invested sensibly.
secretasiandan 15y ago
That's not an article, that's a press release. Source is Business Wire https://en.wikipedia.org/wiki/Business_Wire https://en.wikipedia.org/wiki/Business_Wire "Business Wire is a company that disseminates full-text news releases from thousands of companies and organizations worldwide to news media, financial markets, disclosure systems, investors, information web sites, databases and other audiences" Does the press have an incentive to talk about the plunge in profits? Yes Does the company itself have an incentive to spin things by touting increased revenues? Yes
- bostonpete 15y ago
  I don't think you needed to provide that link/quote. It's got "PRESS RELEASE" printed right there at the top of the article.
  - eliasmacpherson 15y ago
    saves me from clicking the link.
- gujk 15y ago
  It is a document released to the press by Amazon, but it isn't an ad, it is a copy/summary of their official earnings report, plus some ignorable color.
jsdalton 15y ago
For what it's worth, that's the company press release you just linked to. (Business Wire is a service that broadcasts press releases and regulatory filings.) Compare: http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1621411&highlight= http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=iro...
cas 15y ago
AFAIK there is no substantial evidence that the Kindle Fire is being sold as a loss leader however I can imagine the profit margins are slim.
- tomkarlo 15y ago
  Given that no kindles fires have shipped, they haven't booked any revenue or costs for them yet, either.
  - ericbrunstad 15y ago
    Not shipping doesn't imply no costs. A company could produce many million units of a product but be unable to ship them for regulatory reasons, for example.
  - rbranson 15y ago
    I'm pretty sure their vendors would disagree.
    - tomkarlo 15y ago
      I'm pretty sure they wouldn't, since that's how GAAP accounting works. For revenues and costs directly related to a product, you don't book them until the product is shipped to a customer.
      - holdenk 15y ago
        Its been awhile since I took an accounting class, but lets say my cost of producing the kindle fire was $20 and my expected ability to sell it was at $15, I would book my kindle inventory at $15 on the books even though its acquisition cost was higher (i.e. you put it on your books at the lower of acquisition cost and expected disposal value). This has only been part a GAAP since 1990 though.
        polymatter 15y ago
        I'm not sure why you're being downmodded, you're absolutely correct. IAS 2[1] states "inventories shall be measured at the lower of cost and net realizable value", which is exactly what you said. IAS is the International Accounting Standards, which is what pretty much all accounts meet. Inventories mean stock. Net realizable value means what you can get for them. US GAAP covers this as well (though I can't find a reference right now). Showing your inventory at $20 per unit, when you can only expect to make $15 per unit selling them, would be overestimating the value of your stock. A competent auditor wouldn't sign off on your accounts like that. [1] (http://www.icaew.com/en/library/subject-gateways/accounting-standards/ifrs/ias-02 http://www.icaew.com/en/library/subject-gateways/accounting-...) (from a trainee accountant)

icebraining 15y ago

Exactly. The drop is an investment and was expected.

philjr 15y ago

In addition to massive hiring

megablast 15y ago

On the other hand, revenues can mean nothing as well, since profits are what count, and huge revenues do not always translate, and could be a sign of a spending problem.

gujk 15y ago
It can be hard to tease out from the fancy accounting, but marginal profit (that is presumably sustainable) should be distinguished from new investment (which can be stopped if needed) and not just added together to get a profit number. That said, the buck should eventually stop at Free Cash Flow to prove shareholder value, which is then paid as dividend or invested sensibly.

secretasiandan 15y ago

That's not an article, that's a press release. Source is Business Wire https://en.wikipedia.org/wiki/Business_Wire https://en.wikipedia.org/wiki/Business_Wire "Business Wire is a company that disseminates full-text news releases from thousands of companies and organizations worldwide to news media, financial markets, disclosure systems, investors, information web sites, databases and other audiences" Does the press have an incentive to talk about the plunge in profits? Yes Does the company itself have an incentive to spin things by touting increased revenues? Yes

bostonpete 15y ago
I don't think you needed to provide that link/quote. It's got "PRESS RELEASE" printed right there at the top of the article.
- eliasmacpherson 15y ago
  saves me from clicking the link.
gujk 15y ago
It is a document released to the press by Amazon, but it isn't an ad, it is a copy/summary of their official earnings report, plus some ignorable color.

jsdalton 15y ago

For what it's worth, that's the company press release you just linked to. (Business Wire is a service that broadcasts press releases and regulatory filings.) Compare: http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1621411&highlight= http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=iro...

cas 15y ago

AFAIK there is no substantial evidence that the Kindle Fire is being sold as a loss leader however I can imagine the profit margins are slim.

tomkarlo 15y ago
Given that no kindles fires have shipped, they haven't booked any revenue or costs for them yet, either.
- ericbrunstad 15y ago
  Not shipping doesn't imply no costs. A company could produce many million units of a product but be unable to ship them for regulatory reasons, for example.
- rbranson 15y ago
  I'm pretty sure their vendors would disagree.
  - tomkarlo 15y ago
    I'm pretty sure they wouldn't, since that's how GAAP accounting works. For revenues and costs directly related to a product, you don't book them until the product is shipped to a customer.
    - holdenk 15y ago
      Its been awhile since I took an accounting class, but lets say my cost of producing the kindle fire was $20 and my expected ability to sell it was at $15, I would book my kindle inventory at $15 on the books even though its acquisition cost was higher (i.e. you put it on your books at the lower of acquisition cost and expected disposal value). This has only been part a GAAP since 1990 though.
      - polymatter 15y ago
        I'm not sure why you're being downmodded, you're absolutely correct. IAS 2[1] states "inventories shall be measured at the lower of cost and net realizable value", which is exactly what you said. IAS is the International Accounting Standards, which is what pretty much all accounts meet. Inventories mean stock. Net realizable value means what you can get for them. US GAAP covers this as well (though I can't find a reference right now). Showing your inventory at $20 per unit, when you can only expect to make $15 per unit selling them, would be overestimating the value of your stock. A competent auditor wouldn't sign off on your accounts like that. [1] (http://www.icaew.com/en/library/subject-gateways/accounting-standards/ifrs/ias-02 http://www.icaew.com/en/library/subject-gateways/accounting-...) (from a trainee accountant)