Amazon Q1 2014: sales up, net income up, operating income down

Amazon Q1 2014: sales up, net income up, operating income down

In terms of sales, Amazon is like the giant chicken heart in Arch Oboler’s old time radio show Lights Out: it just keeps growing, and growing, and… 😉

In this

press release

Amazon reports its first quarter financials for 2014.

You can also go from a link there to hear the conference call…often, the question and answer part is the most interesting, but I have to say, they’ve gotten very good at deflecting questions.

The first, amazing thing, is that the sales are up 23%!

Well, maybe not amazing for Amazon, but for pretty much anybody else? Off the charts!

I’m not super sophisticated on market analysis, but to my eye, the losses didn’t seem as bad.

The net income increased. That’s not as important as the operating income, as I understand it, and the latter did decrease 19%. This time, some of the expenses are obvious…and the launch of the Fire TV, among other things, is building a platform for the future.

In the press release, Jeff Bezos says,

“We get our energy from inventing on behalf of customers, and 2014 is off to a kinetic start…”

I’m not sure every investor hears that and thinks, “Oh, goody…” 😉

As a customer, though? Woo-hoo!

I like kinetic (keeping things in motion).

Digital is still in the beginning stages (as Bezos likes to say, it is still day one). I don’t want people to stand still…at least not yet.

Bezos also revealed in the press release that Netflix has signed on to the voice search on the

Amazon Fire TV (at AmazonSmile: benefit a non-profit of your choice by shopping*)

That’s big news! With voice search available (eventually) for Netflix, Amazon Video, and Hulu+, they are covering the biggies.

In terms of the Fire, they are also making it easy to develop games for it…and maybe we’ll get some book-related apps, too. 🙂

Speaking of books, their highlights doesn’t address much in that area for US consumers. Yes, they acquired comiXology, which is big for comics fans. They mention that they are doing an Amazon Publishing thing in Germany, and mentioned the Kindle Owners’ Lending Library in passing.

Don’t think they’ve given up on that, though. Books are (and I think will continue to be) part of who they are. I’m guessing we will see a new Paperwhite pretty soon, and there are more cool things they can do with e-books.

I think we have to honestly say, though, that if you asked 100 people on the street to define, not very many of them would say “an online bookstore” any more.

It’s more about hardware (phone soon?), consumer products…and groceries.

They just introduced something I find a bit weird:

Prime Pantry (at AmazonSmile)

Prime members can order what would be grocery store items.

That sounds good, right?

Well, what’s a bit baffling at this point is that we could already do that. We get quite a few things like that, especially through Subscribe & Save. Subscribe & Save isn’t part of Prime, but being a Prime member doesn’t stop us from doing it. 😉

When you subscribe, you don’t pay shipping, and you get a discount.

With this new Prime Pantry thing, you fill up a box…and then pay $5.99 on top of your annual $99 fee.

At this point (and I haven’t dug through the items much), I don’t see why I would buy from Amazon Pantry, when I can get them with no shipping cost…oh, and faster if they are Prime, by the way. I can usually get Prime items in two (business) days at no additional cost…this could take four or so.

If we look at Amazon’s three core values, we can look at how they might make this appealing:

  • Selection: I think that’s the key. One thing they may be doing here is letting you buy smaller amounts. You may not want to buy ten things of deodorant every six months, when you can buy just one as you need it. They may also start taking things off of Subscribe and Save and Prime generally, making them only available through Prime Pantry (or full price shipping). Prime Pantry might manage to absorb a bunch of those “Add-On” items…it can be annoying to have to get to a certain order total to be able to buy an Add-On item
  • Price: we start out with the premise that it is going to cost about $6 more. If they could give us discounts which made it cost more than $6 less, people might do it (but that does require pretty sophisticated thinking). They already have an exclusive coupons section
  • Service: that’s where they can make this work, I think. It has to seem a lot easier to get it through Prime Pantry. I’m not quite sure how they can do that yet, but they have to really work on the ease of the interface and search. For example, it could suggest when you might need to re-order something. I see that they do have a “buy from past purchases” section…but it only counts Prime Pantry purchases, so I don’t have anything there yet

The other possibility is that they are going to make it a lot better…that this is just an example of “launch limitations”. They could simply improve Prime Pantry (maybe including fresh foods…as a gateway to getting you on Amazon Fresh, when it gets to your town), or make general Prime/Subscribe & Save worse. I wonder if they would fold Subscribe and Save into Prime Pantry, somehow?

We’ll just have to see what happens…don’t worry, I don’t think alphabet soup will ever be the only “book” Amazon carries. 😉

Overall, it looks like initial Wall Street reaction to this report is pretty good. I think the exclusive HBO deal Amazon just signed really made them a mainstream video player in investors’ eyes, and I think Fire TV is seen as a real possibility to get app income.

Remember, it wasn’t that long ago that people didn’t really expect Amazon to succeed with hardware…they are now leaders in that area, as far as consumers are concerned.

Meanwhile, Apple’s iPad sales are perceived as weakening…

Let me wrap up with this: I’m glad I’m not directly competing with Amazon… 😉

* I am linking to the same thing at the regular Amazon site, and at AmazonSmile. When you shop at AmazonSmile, half a percent of your purchase price on eligible items goes to a non-profit you choose. It will feel just like shopping at Amazon: you’ll be using your same account. The one thing for you that is different is that you pick a non-profit the first time you go (which you can change whenever you want)…and the good feeling you’ll get. :) Shop ’til you help! :) 

This post by Bufo Calvin originally appeared in the I Love My Kindle blog. To support this or other blogs/organizations, buy  Amazon Gift Cards from a link on the site, then use those to buy your items. There will be no cost to you, and a benefit to them.

5 Responses to “Amazon Q1 2014: sales up, net income up, operating income down”

  1. edward boyhan Says:

    Every quarter on this day I’m faced with a dilemma: whether to listen to Microsoft’s earning call or Amazon’s. This time I chose Amazon, and it was pretty non-informative and vague — as you say: they’ve gotten rather good at saying nothing in a pleasant tone of voice. They’ve also gotten very good at tuning the timing of certain events so that they hit top line financial targets (and street expectations) very closely.

    This time they managed to equal or slightly better street expectations — it will be interesting to see what the stock price does. I just finished reading an article claiming that Jeff Bezos net worth has dropped precipitously in the last few months (second only to Carlos Slim’s drop) primarily due to the fact that much of his wealth is in Amazon stock whose price is off 17% this year.

    The Kindle Fire TV is interesting. The announcement came while I was in SF at MS’s Build conference where they gave me an Xbox One (I’m not a gamer — so that was pretty much of a yawn). But then I got to thinking: I have a Roku 3 which I’ve never taken out of the box, I’ve got two smart TV’s,, and I’ve been very interested in the evolution of the content on Chromecast (whose price is hard to beat :grin).

    Then I remembered that MS is trying to get away from pure game consoles and position the Xbox One as a kind of high end living room media center — competing against Apple TV, Chromecast, Roku, etch — while Amazon with the KFTV is sticking its toe in the gaming pool. So I decided while still in SF that I would get a KFTV and do a massive comparison of all the afore-named devices..

    But then the initial KFTV reviews came out. They were kind of mixed, but there seemed to be a lack of coverage and polish in some of the features — nothing that Amazon couldn’t fix — as you pointed out in a recent column, and as recent Amazon actions (including have todays Netflix announcement) have proven out.

    Nevertheless this is not high on my list of things to evaluate — so I’m waiting a bit before I buy the KFTV and a Chromecast — probably over the summer. Certainly the app development possibilities for KFTV (given it’s based on FireOS) are intriguing.

    Like you I’ve been buying a lot of shapes/essentials from Amazon — not because of price, but because I can get large sizes/quantities, and it’s a heck of a lot faster than trekking off to the local BJ’s or Sam’s Club. My sense of what I heard about Prime Pantry (and I haven’t done much research on it — I’ve got the web page open — maybe tomorrow) is that they’re going in the opposite direction and offering bundles consisting of smaller quantities rather than larger.

    The tech press has been full of an academic research report looking at Amazon sales in states that have recently adopted sales taxes, and they have found some declines after sales taxes were enacted (quite modest I thought — around 2% overall). They did point out that consumers were turning to alternate online providers. The irony is that many of those alternate online providers were Amazon third party sellers (so Amazon gets a cut — though the researchers didn’t address that).

    The tech and mainstream press would have you believe that sales taxes were the comeuppance and doom for Amazon. I’m not sure how big a deal price is compared with just the sheer convenience of online shopping vs bricks and mortar.

    Anyhow I thought the analysts would be asking some questions about this widely reported report — but nary a peep! Not that the CFO would have said anything material (:grin)

    • Bufo Calvin Says:

      Thanks for writing, Edward!

      Well, they do have the recording of the conference call…you could listen to them both by time-shifting. 😉

      An intriguing (and important) part: it’s not actually the Kindle Fire TV, it’s just the (Amazon) Fire TV. To me, the interface is somewhat like the Kindle Fire, and they do put it in the Kindle “family stripe” on the website…but it isn’t officially a Kindle product.

      I’ve been considering writing about the tax effect paper. Many people, I think especially brick-and-mortar retailers (and I’m a former one), want to paint this picture that all of their woes are due to unequal collection. The study suggests strongly that that’s not the case. When Amazon has to collect taxes and other online retailers don’t, it doesn’t drive people into the physical stores (much)…it sends them to other online retailers. If all the online retailers collected tax, I think the positive impact on “Main Street” might be minimal.

      Amazon shares are up sharply so far this morning…so maybe Jeff will still be able to get a car loan. 😉

  2. Phink Says:

    This is off subject Bufo but I realize there is something about Kindle books that I really do not like. I still love it and will not read anything if it’s not available on the kindle but…..I do not like the way my book covers change overnight sometimes. I know what’s really important is what’s inside the book, not the cover, but it still bothers me. It is possible that never again will some of us have the 1st edition cover while others have the movie version cover. I was really irritated when the book ‘Starters’ changed recently. The original Starters cover was maybe my favorite all-time book cover. Now, it’s just average. If interested you can do a google search for original Starters cover by Lissa Price (not Lisa LOL). I was wondering how you felt about this.

    • Bufo Calvin Says:

      Thanks for writing, Phink!

      Is the cover changing for you after you bought the book, or just changing for new buyers?

  3. Does Amazon love us TOO much? | I Love My Kindle Says:

    […] Amazon stock rebound this week, but the narrative in the blogosphere right now is that, based on Amazon’s recently reported Q1 financials, investors are fed up and selling the […]

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