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

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

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

TOPICS: Amazon

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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Topic: Amazon

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  • there is no paradox

    Apple does not need the high share prices. Especially during times when they intend to buy back 100b of the stock. It is in Apple's interest that the share price is low, so that they can buy more back for that money.

    In general, share prices have nothing to do with the company performance or profits for shareholders. It's the speculants that have something to lose.
    • Re: Apple does not need the high share prices.

      And its profits are declining, so I guess it doesn't need those either.

      And its market share is dropping, so clearly market share isn't among its worries.

      And technologically speaking, its products lost their cutting edge long ago.

      So what's left must be what's the most important thing to Apple. And that is...

      ...what is it, again?
  • Yeah, Henry Blodget was quite the rising star.

    Until it came out that his private analysis was opposite his public advice, he was fined US$ 2 million (plus a US$ 2 million disgorgement), and then banned for life by the SEC.

    If that's the guy Amazon thinks is going to help improve "communications with its shareholders" than Bezos is even more of a huckster than I thought.
  • when did Netflix become an HBO service?

    "As Amazon steps up competition against giants such as Apple, against HBO with its popular Netflix service"

    Is that a typo?
    • Not a typo, just a poorly crafted sentence.

      Netflix uses Amazon Web Services for much of it's streaming services.
      • Still irrelevant...

        That may be true, but why would there be a need to mention it, or the fact that Netflix is competing with Apple and HBO in this space? Dropbox also uses Amazon's cloud, but there was no mention of Amazon's storage wars. Also, Amazon has its own video streaming service that competes directly with Netflix, so why not just mention that?

        I'll bet that BECAUSE Netflix uses Amazon Web Services, the author assumed that Amazon owned Netflix... because the two are always mentioned in the news together whenever Amazon's cloud takes a nosedive.
  • Um, I wasn't aware that share price

    affected profits. Am I wrong? As long as you are making good profit, why should you care what your share price is? Seriously. Someone with more financial knowledge than me feel free to answer.
    • What!!!

      You miss the point of the market as driven by Wall Street. No institutional investor (unless its Warren Buffet and his kind) is going to sit around waiting for your company to pay dividends one or twice a year. It is necessary that stocks have some volatility so that the market makers can buy and sell (even shares they do not own, or intend to keep) and make a profit on even shorting stocks. 15cents on 1 million shares going up on down in value makes an opportunity for the market makers. Shares have become not instruments of faith in a company, but chips in a casino with Wall Street gambling on what its apparent value might (to another buyer or seller) be every fraction of a second.
      But the impact is that now people are taking a long hard look at Apple and wondering what it is not getting right when in reality, its fundamentals do not change by the hour, day, or month. It is all really just a silly game, detached from reality. But Apple will respond by buying back shares so that the 'market' retains a 'positive' outlook on the company. Looks like blackmail to me, but then again, Apple needs to pass on a lot of that profit to its shareholders in one way or the other. It is their money/profit after all, so why are they hoarding it all?
  • Apple=Greed, Amazon=Fair

    You've got to admire a company that gives millions great products at minuscule margins and loath one as avaricious as Apple.

    Or at least I do.