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Kindle Fire Hurts Amazon's Revs

On an earnings call this week, Amazon revealed that its investment in the Kindle Fire is hurting operating margins. And, while Amazon is keep the exact numbers to itself, Web watchers are debating how much the company can afford lose to take on Apple’s iPad.

“To gain an edge in tablets, Amazon is selling its new Kindle Fire device for as low as $199 -- less than half the price of Apple’s cheapest iPad,” Bloomberg reports. “At that price, the company will lose $10 per device, research firm IHS Inc. estimates.”

“Piper Jaffray's Gene Munster estimates that the company will lose $50 per Kindle Fire sale,” AppleInsider notes.

“Although it appears the Kindle Fire will continue to sell at a rapid pace, strong tablet sales may not be enough to improve the company’s earnings in the immediate future,” writes Search Engine Journal.

Yet, citing comments from Amazon CFO Thomas Szkutak, AllThingsD thinks Amazon is perfectly happy losing money on Fire in the short term, “because it could sell more stuff to Fire owners in the long run.”

When “we think about the economics of the Kindle business, we think about the totality,” Szkutak said on Amazon’s earnings call this, according to a transcript from Seeking Alpha. “We think of the lifetime value of those devices. So we’re not just thinking about the economics of the device and the accessories. We think about the content.

Also of particular note, “We are selling quite a bit of Special Offers devices which includes ads,” Szkutak added. “We’re thinking about the advertisements and those Special Offers and those lifetime value[s].” 

Big picture, “Amazon unapologetically builds its business for the long-term, without worrying about what short-term Wall Street traders think,” Business Insider writes.

Meanwhile, as AllThingsD reminds us, “It’s important to stress that Amazon’s gadget model is the opposite of Apple’s: Tim Cook sells media so he can sell iPads and iPhones; Bezos sells Kindles so he can sell books and videos and music and even advertising.”


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