Why Amazon's Tablet Business Is Nowhere Near As Good As Apple's (Yet)

kindle fire fire

Amazon just disappointed Wall Street with a big revenue miss in the last quarter of 2011.

But more interesting story comes when you contrast how Amazon is talking (or not talking) about the Kindle Fire, versus how Apple talks about the iPad.

Amazon gave no sales stats for the Kindle or Kindle Fire, saying only that sales of the entire Kindle line was up 177%.

But overall expenses were up $4.7 billion from last year’s quarter — that’s more than revenue, which grew $4.5 billion.

Amazon doesn’t break out expenses or revenue by product line (Kindle hardware sales are lumped in with the broad Electronics and General Merchandise category), but if Amazon is really losing at least $5 per Kindle Fire sold, it makes sense that expenses are going up faster than revenue.

As a result, net income dropped 58% from last year, to $177 million.

Contrast that with Apple: in its Q4, the company sold 15.4 million iPads. Apple doesn’t break out profit by product line either, but it showed a huge overall profit of $13.06 billion — the fourth largest quarterly profit for any company, ever (the top three are all oil companies).

But that’s exactly the plan.

Amazon is not a hardware company. It never expected to make money on the Kindle Fire. The whole idea is to seed the world with these tablets which are primed for shopping and consuming media — all sold by Amazon.

The value of a Kindle Fire isn’t in the profit margin. It’s in the lifetime value of each customer captured.

Investors who buy Amazon stock are betting that lifetime value will be way more than the $5 or so that Amazon is losing on each sale now.

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