Amazon is leveraging its hefty revenues from its legacy ecommerce business to put a hand in every cookie jar. The company founded by Jeff Bezos delivered an expected third quarter loss on nearly $14 billion in revenues while giving updates on their progress on several fronts from big data analytics and cloud computing to music and video streaming. But there is one market Bezos covets above all: tablets, in which he’s trying to take Apple and its iPads head on.
Bezos is going all in. The founder and CEO of Amazon is effectively deploying his capital to get a cut of everyone’s market. Like a cookie-eating octopus, Bezos’ Amazon is reaching all over the place. In their third quarter earnings release
Amazon revealed that free cash flow for the trailing-12 months fell 17% to $1.5 billion compared to a year ago. The company posted a net loss of $274 million (from a gain of $63 million a year before) and, despite seeing net sales jump 26.6% to $13.8 billion, faced rapidly rising costs of sales, which surged 24.1% to $10.3 billion.
The main factor here is Amazon’s business model, which Bezos illustrates clearly in his remarks bragging about his Kindles. “Our approach is to work hard to charge less. Sell devices near breakeven and you can pack a lot of sophisticated hardware into a very low price point,” he said, adding “And our approach is working – the $199 Kindle Fire HD is the #1 bestselling product across Amazon worldwide.”
And Bezos goes further, noting that their second and their bestselling products worldwide are the Kindle Paperweight and the $69 Kindle. Amazon’s founder was also pretty straightforward about who is their main competitor. Immediately after explaining that they have still to begin shipping their “best table” (the $299 Kindle Fire HD 8.9”), Amazon’s management compared their two best selling tablet products to Apple’s iPad mini, which was released a day before.
They note that both the coming Kindle Fire HD and the 7” version have better resolution, better speakers, and cost less. The fact that this comparison was part of an earnings statement released only a day after the iPad mini was launched suggests Amazon has been eyeing Apple closely.
And it’s not just Apple. Bezos is going after anyone, anywhere. His Amazon Prime video streaming service is a direct competitor to Netflix (in the release, the company announced it reached a licensing agreement with EPIX giving their users access to movies like The Avengers, Iron Man 2, and the Hunger Games, meaning the cable channel ended its exclusivity with Netflix) and, to a certain extent, the Apple iTunes store.
Apple is also making a big push into cloud computing. The company touted its offerings of cloud-based storage and financial computing services. They also offer big data analytics, high performance computing, web and collaboration applications, and archiving and storage. This potentially pits them against the likes of Oracle and IBM.
Amazon is putting its cash to work, and it’s financing its expansion with revenues from its substantial ecommerce business. Markets were mildly disappointed in the afterhours, with the stock dropping 1.2% to $220.27 by 5:26 PM in New York. But the stock is up more than 27% thus far in 2012, meaning there are a fair number of investors that believe in Bezos. As the company burns through cash in order to fight on all fronts, it will become increasingly difficult to operate at or near breakeven levels.
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