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Saturday, April 28, 2012

Amazon stock rises, beating logic

Amazon's margin of 1% leads to buying frenzy

I keep on waiting for Amazon to fall over from sheer weight, but no, the mega-internet-store continues to flourish.

Publishers Lunch reports that Amazon continues to grow sales and produce very little income.  The latest spreadsheet reveals revenues of $13.18 million for their first quarter (up 34 percent) and net income of $130 million (down 35 percent).

North American media sales ($2.197 billion) were up 17 percent, and international media sales ($2.513 billion) rose 21 percent.

It seems that the beancounters are placing a lot of faith in Kindle Direct, the indie publishing arm that persuades authors to make their work exclusive to Amazon. The press release leads by trumpeting that authors of 130,000 KDP titles have signed up for the scheme, so that Prime members can borrow them for free.

The recent Department of Justice action is, of course, hailed as a big win.  It will, again of course, lead to lowering of the prices of more Kindle books.  So the same kind of growth (or non-growth) can be expected in the future.

And sales will zoom.  The forecast if that they will grow between 20% and 34%. Operating income estimates range from a $260 million loss to a $40 million gain.

Despite these unimpressive figures, the estimates were above expectations -- and so Amazon stock has risen sharply.  According to the Nasdaq index, a share is currently worth $226.57, having risen 15.9% overnight.

1 comment:

Rick Spilman said...

I think the market would be more worried by earnings if Amazon was not plowing so much money back into their business. They have opened at least 13 new distributions centers this year and have hired 10,000 employees in the past three months. They now employ 65,600 people, up from 37,900 a year ago. The perception seems to be that their buoyant sales support their investments which will lead to more sales. That being said their P/E is far beyond nosebleed territory. Nevertheless, their cash flow ratios are very strong.