Stock of the Day
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Amazon (AMZN)
Amazon Stock Slammed, Prepares to Fight Apple
Amazon.com's share price fell by more than 20% per share in midday trading on the Nasdaq after the company reported a 58% drop in profits for the second quarter. The company was trading at roughly one-half its fifty-two week high, in fact share prices have fallen to a three-year low. The lost profits are attributed to free shipping promotions and other expenses, similar to how Dell's (DELL: Charts, News, Offers) aggressive price cuts have cost that company in recent quarters. Already slightly the worse for wear, Amazon is setting up for a fight with undefeated Apple (AAPL: Charts, News, Offers) over online movie distribution. Is Amazon ready for the fight, or will Apple keep its title?
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After market close on Tuesday Amazon announced a Q-2 drop in earnings of $22 mn. Why the big losses? The company has spent over $300 mn trying to gather the proper technologies (and property and distribution rights) to move its digital media initiative forward. Unfortunately, Wall Street is concerned for the initiative because, as Mark Mahaney, a Citigroup analyst noted, there are "still no clear signs of ROI on all that technology and content spending." So the money may as well be going into a hole, unless Amazon can start producing --fast.
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The 200-pound gorilla in the room is not the ubiquitous iPod, but the accompanying software platform -- iTunes. Amazon is said to be developing such a competitor, but the company is notorious for secrecy revolving around its new developments. However, can it leapfrog over Apple's well-established position in Audio content sales into video content distribution? Maybe not. Apple's more cutting edge iPods that support video content have been available some time now. Without a similar platform available to Amazon, the company may not be able to stimulate sufficient demand.
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In the meantime, Amazon must cover the position that made it one of the top retailers in the country -- its online sales business. As the company expands in that arena shipping costs are not due to fall any time soon. To enjoy the 22 percent increase in revenues, the company has had to eat the increased cost of shipping. This may only double the company's efforts to move further into the digital media distribution business.
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Profile |
The Company's principal activity is to provide online retail sales. It operates in three principal segments: Books, Music and DVD/Video; Electronics, Tools and Kitchen and Other. Books, Music and DVD/Video segment includes retail sales from www.amazon.com of books, music and DVDs/video products and magazine subscriptions. Electronics, Tools and Kitchen segment includes retail sales from www.amazon.com of electronics, photo items, software, cell phones, outdoor living items, kitchen and houseware products, toys and video games. International segment includes retail sales of four internationally focused web sites: www.amazon.co.uk, www.amazon.de, www.amazon.fr and www.amazon.co.jp.
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