Amazon’s sales up 35% for 2011 Fourth Quarter

Amazon’s sales up 35% for 2011 Fourth Quarter

Thirty-five percent! That’s a huge number, as reported in this

Press Release

That’s not something you’d expect in a company that has been around  for more than fifteen years…and has already been successful.

Clearly, in terms of sales, the Kindle Fire had a big impact.

  • The number of Amazon Instant videos rented or purchased (these are not the Prime free streaming ones) more than doubled…presumably, a lot of those went to Kindle Fire owners
  • Amazon Appstore purchases nearly tripled in the fourth quarter compared to the third quarter (it hasn’t been around long enough for a year-to-year comparison). While an increase would be expected in the holiday season, this seems like a lot
  • Kindle sales (counting the Fire and the RSKs…Reflective Screen Kindles) were up 177%

It’s not just the Fire, though. The $79/$109 model, which I call the Mindle, was the number one selling product on five of the Kindle sites (Amazon.it, Amazon.es, Amazon.co.uk, Amazon.fr, and Amazon.de).

Now, that doesn’t mean that net income was up 35%…far from it. It was down 58%.

Why?

Well, one reason is that Amazon is spending a lot of money increasing the content available to Prime members. That certainly sells Fires, but it also sells “diapers and windshield wipers”, as I like to say. That’s where the money is, I think. There is a huge potential for growth for Amazon in the physical goods market.  Amazon licensed more videos. They paid half a million dollars in December alone to increase the number of books in the KOLL (Kindle Owners’ Lending Library)…and it definitely worked.

I never quite know how investors will react, but I think the headline will more be the 58% drop than the 35% increase.

I also think that’s short-sighted…and the market will know that.

It wouldn’t surprise me if Amazon’s shares dropped initially, and recovered by Friday.

I’m just guessing on that part, though…I’m not a stock guru by any means. 🙂

What do you think? Is Amazon over investing in getting people to be Prime members? If there are a lot of Kindle Fire returns, does this make that a bad strategy? How likely is it that somebody who bought a Fire and returned it would renew Prime? How is the market going to react to this report? Feel free to comment on this post and let me know…

Update: as I expected, the stock dropped the next day and has been recovering pretty quickly. It may not get back to where it was by the end of Friday, but you can see the progress here:

http://money.cnn.com/quote/quote.html?symb=AMZN&iid=HP_Last5

This post by Bufo Calvin originally appeared in the I Love My Kindle blog.

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13 Responses to “Amazon’s sales up 35% for 2011 Fourth Quarter”

  1. Deb Schmalz Says:

    I was a Prime member long before the Fire was a dream. I was ‘into’ Amazon for those diapers and windshield wipers. I bought everything (and some dream items) from them. So I jumped onto the Prime band wagon right away and it’s paid for itself every year. What a bargain! You may use this in your blog.

    • Bufo Calvin Says:

      Thanks for writing, Deb!

      Prime started in the contiguous United States in 2005, and has been growing greatly. I have to be careful not to entangle the two: Prime would still thrive without the Fire, I think…and I think the Fire would have been a success without Prime.

      However, I do think that the Fire is increasing the number of new Prime members, with the attraction of the Prime streaming videos. I know we had looked at Prime and rejected it before the Fire…and the Kindle Owners’ Lending Library (KOLL). I’m liking it a lot, though. 🙂

      By the way, when you post a comment to a blog, it’s a bit like an e-mail. Unless you say it is private, the “recipient” has the right to publish it. I believe that’s the way it works…

  2. Tom Semple Says:

    Does not look like there was much effect on AMZN. It was down this morning but up 2.29 by EOT.

    Based on my own experience, I think Amazon’s investment in Prime Video and KOLL more than pays for itself via gravitational attraction and Prime ‘stickiness’ in general. I don’t think they are over-investing. I don’t think it depends much on the success of Fire as a video consumption device. The penetration Amazon Video (and likewise with Netflix streaming) has on set-top boxes (blu-ray, roku etc.) is much more significant, or at least that has been the case for us—I really don’t enjoy watching TV and movies on the Fire (or other mobile devices) very much.

    • Bufo Calvin Says:

      Thanks for writing, Tom!

      Well, the announcement was right at the end of the trading day. I don’t think we’ll know about the impact until tomorrow.

      I do use the video on the Fire. When I polled my readers

      https://ilmk.wordpress.com/2012/01/17/how-do-you-use-your-kindle-fire/

      only 14.62% never use video.

      Especially if they are low consumers of video, I would think that free Prime streaming video would be attractive…disproportionately to someone who pays a substantial amount each month for video and consumes it daily.

      When we look at the “nevers”, it goes like this:

      Docs: 49.61%
      Newsstand: 43.14%
      Music: 33.82%
      Video: 14.62%
      Books: 5.11%
      Apps: 2.64%
      Web: 1.89%

  3. Kerry Says:

    Ultimately, I think Amazon will be successful overall (Fire or not). I became a Prime member when I got my Fire. When it came to buying Christmas gifts, it was a easy decision to buy from Amazon with free shipping on most items.
    Pricing is competitive enough, so I continue to consider Amazon with many purchases… even for my employer. So if others have my similar buying habits, that’s a good thing ( as Martha would say) for Amazon.

    thought process when it comes to purchasing

    • Kerry Says:

      Idk… I have problems not having arrows on the keyboard when posting. I can’t seem to navigate properly when I try to edit before posting. Thus… open ended sentences that don’t make sense. 🙂

  4. Barbara Wood Gray Says:

    I paid to join Prime. How do I easily find out what the daily deals are? So far all I’m getting is free shipping IF I order something.

    • Bufo Calvin Says:

      Thanks for writing, Barbara!

      Prime doesn’t mean specifically daily deals…it means things that are always free (or more accurately, at no additional cost), plus the shipping deal you mention.

      The shipping is free for two-day shipping (on indicated products) or $3.99 on 1-day shipping (again, on eligible products).

      You also can view free Prime streaming videos. Those are here:

      Prime streaming videos

      You also can borrow up to a book a month from a select set (of close to 100,000) titles. You can only borrow those from a Kindle, not from a computer, and you must click a button that says “borrow” not “buy”. You can browse them on a computer from the below link, but again, you must borrow them from a Kindle (and not a Kindle app):

      KOLL (Kindle Owners’ Lending Library)

  5. Edward Boyhan Says:

    http://online.wsj.com/article/SB10001424052970204740904577195371567545142.html?mod=WSJ_Tech_LEADTop

    It was a mixed bag, but not actually all bad. Revenues were within their guidance band, but less than what the street expected. Gross margin % actually improved a bit over last quarter, but is still down year over year. They made money even though guidance suggested they could’ve booked a loss. Earnings per share was almost double what the street expected. The big baddie was that free cash flow was markedly down (unlike in previous quarters).

    The analysis that I read said that most of the missed expectations came from the non-AWS, non-kindle, non-media physicals side of the ledger, and that was due to a warm Christmas quarter — so customers shopped more at brick&mortar outlets (seems thin to me).

    Forward guidance has revenues less than what street wants, and they again say they could generate a loss. They said they are continuing to aggressively invest in distribution centers, technology, and AWS.

    Their problem as I see it is that as they grow sales rapidly — especially physicals — there’s no easy way to improve distribution costs (at least I can’t think of any).

    As with previous quarters the stock is down in after hours trading (it closed at $194 — it had reached a high of $250 back in Oct). I expect you are right, and the stock will recover some; although inevitable comparisons with Apple’s blowout quarter may dampen things a bit.

    I’m encouraged by the technology spend — as that probably means there are new goodies in the pipeline, and probably a lot of web site improvements as well as they continue to leverage AWS.

    • Bufo Calvin Says:

      Thanks for writing, Edward!

      I do think that the costs of shipping generally will increase, although it’s possible alternative fuels and delivery systems may keep that from just being an astronomical climb.

      Amazon is opening more fulfillment centers, and that’s an expensive investment. There is a good rumor that Amazon may open one in California.

      We’ll see…Amazon didn’t make money on the site for years. The formula that I think is hard for the investors is that sales likely mean long term customers…and as efficiencies increase and competition decreases, that may mean more profit later.

      Amazon could blow it somehow, and I really don’t know how dependent it is on Bezos’ vision…but I’m guessing we’re good for at least a decade.

  6. gous Says:

    Cannot agree with this optimistic view I’m afraid. In the first place Amazon’s margin is just pitiful, and getting more so every quarter. If you take away its version of eBay – the marketplace of third-party sellers – Amazon very likely made a loss this quarter. See http://www.fonerbooks.com/selfpublishing/?p=1579&

    As for Amazon’s excuse – sorry, reasons – for their poor margins it just does not add up. See http://seekingalpha.com/article/303707-amazon-will-be-showing-losses-as-soon-as-q1-2012
    Also http://seekingalpha.com/article/330262-amazon-slowdown-much-worse-than-it-seems for his trenchant comments on their latest quarter.

    Amazon is loved by many of its customers and is an innovator of note.
    Viewed purely from a business and stock perspective it just not that impressive.

  7. Round up #69: Stock, Amaphibians, Japan « I Love My Kindle Says:

    […] I wrote about the reaction to Amazon’s 4th Quarter 2011 report. As I guessed, the stock did drop quite a bit at first. On January 31st, the close was $194.44. On February 1st, the close was $179.46. That was a significant drop. […]

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