Shareholders: Amazon’s real advantage over its competitors

Tom Foremski| Memeburn

This quarter Amazon reported a US$82-million net profit on US$16.1-billion in sales for its fiscal first quarter and warned that it might lose more than one-third of a billion dollars (US$340-million) in its current quarter.The unremakable financial performance, and the warning of a large loss, didn’t upset shareholders by much. According to the Financial Times: Its shares oscillated in after-hours trading once its results were released but settled down 2.9%.

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

Apple is hugely profitable but has less room to maneuver. Take a look at this six-month chart comparing $AMZN and $AAPL. Apple shareholders have dumped more than US$279-billion in market cap over the past six months simply because earnings per share missed by a tiny fraction, and explosive sales growth had slowed slightly.

Apple vs Amazon shares

Tim Cook, CEO of Apple, has to be very careful, he can’t take too many risks or else 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 (US$145-billion cash v. US$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. Bezos recently invested US$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 AMZN 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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