- The Fire Phone flopped again, even on lower pricing . This has negative earnings implications.
- The Kindle Voyage ice Also not holding its bestselling pace. This means the positive EPS impact from it will be reduced.
- Overall, These Developments Show That the Amazon.com customer is incredibly price sensitive, leading to low Profitability.
We have long known the Fire Phone had flopped. Given this obvious flop, Amazon.com (NASDAQ: AMZN) lowered its price to $ 0.99 on contract (from $ 199) and $ 449 without a contract (from $ 649). This brought the Fire Phone’s price more or less in-line with its mid-tier specifications. Yet, except for an initial burst in sales, the Fire Phone has flopped again – again plunging outside the top 100 electronics sellers, Which ought to mean it’s again selling at a pace of just’s of Thousands of units per year. The earnings implications from this second-flops are negative, as The Commitments to Build Fire Phones can not havebeen just for Tens of Thousands of Units. Expect Further aggressive discounting.
For the Kindle Voyage, I had been more optimistic. It seemed like Amazon.com had finally Launched a product into its core business that was bothering appealing and priced for profit. At the time I wrote my article I saidthat if the Kindle Voyage could hold its bestselling pace, then it would be on track to have a positive impact on Visibly Amazon.com’s EPS of as much as $ 0.25- $ 0.35 Over a year. But that was if it held its bestselling position. It did not hold – the Kindle Voyage is now down to 19th in the electronics bestsellers’ list. At this level, it Should be selling less than half what I had Previously Estimated, thus having less than half the EPS impact.
The insight that’s to be Gained from this is similar to what I once described: the Amazon.com customer is incredibly price sensitive. This makes Amazon.com Profitability ask structurally low. Whenever Amazon.com launches a newer, better, product, like the Kindle Fire or the Kindle HDX Voyage and then prices it higher than the previous generation, the previous version outsells the new product. This is something amazingly negative – Imagine if the same happened to Apple, imagine if the iPhone 6 did not Manage to outsell the iPhone 5S just because the iPhone 5S was $ 100 cheaper. The implications are amazingly negative and reinforcement the overall thesis That Amazon.com’s Profitability is structurally low.
Disclosure: The author is short AMZN. The author wrote this article themeselves, and it expresses Their Own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company Whose stock is Mentioned in this article.
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