The secret to Amazon's competitive advantage over Apple, others

Summary:Weak profits and warnings of large losses don't faze Amazon shareholders...

Amazon today reported an $82 million net profit on $16.1 billion in sales for its fiscal first quarter, and warned that it might lose more than one third of $1 billion ($340m) in its current quarter.

Amazon's unremarkable financial performance, and the warning of a large loss, didn't upset shareholders by much; shares fell just 3 percent in after-hours trading.

As Amazon steps up competition against giants such as Apple, against HBO with its popular Netflix service, and against cloud computing vendors Rackspace and others, it has a massive competitive advantage: Its shareholders. They simply won't dump its stock, even when profits are weak and there's the prospect of a large loss.

On $16.1 billion in sales, Apple would have reported the equivalent of $3.5 billion in net profits. Amazon: just $82 million.

Apple is hugely profitable, but it has less room to maneuver. Take a look at this six-month chart comparing Amazon and Apple.

$AAPL $AMZN six month stock chart
Image: Yahoo

Apple shareholders dumped more than $279 billion in valuation over the past six months, simply because earnings per share missed by a tiny fraction, and explosive sales growth had slowed slightly.

Tim Cook, CEO of Apple, has to be very careful; he can't take too many risks, or Wall Street will pummel the company's share price.

Amazon's CEO Jeff Bezos can take more business risks, such as trying out different tablet devices, or different business models for online content - that Apple simply cannot without weighing the considerable risks to its share price if it stumbles minutely.

It's an interesting paradox that a barely profitable Amazon can have a significant advantage over a much more profitable (42 times), and far richer ($145 billion cash vs. $11.5 billion) competitor. And it's because of its stalwart shareholders.

Keeping in the eye of the media is key to Amazon's strategy, because it helps communications with its shareholders. Jeff Bezos recently invested $5 million in Business Insider, an online news site founded by Henry Blodget. He's a former star Wall Street analyst who made his name by predicting Amazon shares would nearly double in a year, sparking a massive two-year bubble in e-commerce stocks. It's interesting to see the two aiding each others' fortunes, again.

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Topics: Amazon


In May 2004, Tom Foremski became the first journalist to leave a major newspaper, the Financial Times, to become a full-time journalist blogger. He writes the popular news blog Silicon Valley Watcher--reporting on the business of Silicon Valley. Tom arrived in San Francisco in 1984, and has covered US technology markets for leading comput... Full Bio

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