Amazon’s Stock On 'Fire'
April 27, 2012

Amazon’s Stock On ‘Fire’

Brett Smith for

Amazon stock experienced a 15 percent gain yesterday on the strength of its first quarter earnings report. The report showed evidence that the company is transitioning from a retailer selling books, DVDs, and video games to more of a digital merchant.

On its website, Amazon said 90 percent of the top selling products on were digital products, like–the Kindle, e-books, music, and mobile apps. The sales of these products boosted Amazon´s first quarter profits by 34 percent over last year to over $13 billion. The inspiring news helped to drive Amazon stock up to $225 per share, a high point for the year.

The success of Amazon´s media sales seems more impressive when looking at the company´s strategy regarding the Kindle Fire, which some analysts say is being sold at a loss. This earning´s report would seem to suggest that Amazon has successfully leveraged the tablet device as a way to sell digital media like streaming video or e-books.

While the Fire is not burning quite as bright as the iPad with respect to market share, a report from digital marketing observer comScore Inc. said that in its first three months, the Fire had grabbed more than half of the U.S. market for Android-based tablet computers.

A Pew research study released this month found the Fire was making some gains in the overall tablet market as well.

“Amazon´s Kindle Fire, a new tablet computer introduced in late 2011, grew in market share from 5% of the market in mid-December to 14% of the tablet market in mid-January. This change also grew as the overall size of the tablet market roughly doubled,” the report said.

One area of concern for Amazon investors might be the company´s net income, which decreased by 35 percent to $130 million in the first quarter compared to last year. In even these numbers were better than Wall Street expectations.

Amazon Chief Financial Officer Tom Szkutak told analysts that the decline in profits was due to Amazon´s continuing investments in areas such as content rights and online infrastructure.

"The good news is we have a lot of opportunity to invest and invent on behalf of customers," he said. "That's what we're doing. It is impacting our bottom line results."

The impressive Amazon earnings report came after another strong showing from Apple. That company´s earnings report halted the slide Apple´s stock had been on over the past few weeks. The Apple first quarter earnings report was significant because it showed the company continuing to make a push into Asian mobile device markets, more specifically China. By comparison, the Kindle Fire is only available in the U.S.

An Amazon press release said the company expects revenue in the second quarter to grow between 20 percent and 34 percent, or to between $11.9 billion and $13.3 billion compared to 2011.

Before Amazon released its outlook for the current quarter, analysts had expected second quarter revenue of $12.8 billion. That number appears to coincide with the company´s own forecast.