By David Dorf on Oct 26, 2011
Wall Street is broken. Yesterday Amazon announced it barely missed top line estimates, but fell far below expectations for the bottom line. Although revenue was up, net income was down 73% from last year. This caused investors to dump the stock, sending it down from $240 to $200 as of this writing. But nothing is wrong at Amazon. They have simply increased their investments in technology and people in order to position the company for the long-term.
As I pointed out in this post back in April, Amazon has consistently made "investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations." To that end, they have hired 8,100 people this past quarter at a time when many businesses are sitting on large sums of cash riding out the storm. They will be well positioned for Christmas this year.
Amazon makes "bold rather than timid investment decisions" like challenging Apple in the tablet market. Their new Kindle Fire sells for $200 but reportedly costs around $205 to produce. This is the old Gillette trick of giving the razors away to sell the blades. They will extend their leadership selling e-book but also break into other media as well. I have already pre-ordered my Kindle Fire, which will get plenty of use in my house along with my iPad2 and regular Kindle.
Amazon continues to "focus on growth with emphasis on long-term profitability" by doing things like securing media content from the likes of CBS, FOX, PBS, NBC Universal, Sony, and Warner Bros for the Amazon streaming service, which is free to Amazon Prime members. Customers that pay $79 a year get free 2-day shipping plus all-you-can-eat access to its growing media library. On average, Amazon Prime members spent $400 the previous year before joining, and $900 after. Pure genius.
I wish more retailers would open their pocketbooks and make more long-term investments in technology. Yes, there's risk involved, but there's also reward when its done with passion and conviction. As I pointed out in this post, the big technology companies are changing the retail industry forever, so its time to get on board. If you don't have a research/innovation team, get one -- this month.
By the way, Jeff Bezos lost about $2.2 billion in stock value this week and he's probably happier than a tick on a fat dog. (This Texas living is rubbing off on me.)