If you read the articles on Facebook’s upcoming IPO, they all comment on the difficulty companies like Google have had coming to grips with the short-termism of investors. One needs to be able to think (and invest) long-term. But ‘The Street’ judges you each quarter.
I couldn’t help thinking of this when I saw Amazon’s shares crash 8% today even though they had reported a 35% revenue increase (to $17.43b) in Q4. The ‘problem’ is that Jeff Bezos has decided to play a long game. The Kindle and the Kindle Fire were his best selling items – perhaps 6m sold - over Christmas. The Fire is the only real competition for the iPad. The Kindle & Fire provide a fantastic ecosystem for Amazon to be able to sell more of its product. It’s a bit like HP giving away the printer because it knows you’ll have to pay through the nose for its printer cartridges to keep it going.
Although Amazon won’t come clean with the numbers, most observers suspect that the $199 Fire is actually being sold at a loss. Actually, I think that’s a good ploy. But clearly investors don’t agree. The Q1 forecast of a bottom line between “a $200m loss and a $100m profits” really spooked the market. Even the mighty Amazon had to admit that sales in Europe had been affected by the eurozone crisis. Then the number crunchers worked out that if Amazon’s sales were being boosted by the Kindle and Fire, that meant pretty lacklustre sales for all the other ‘core’ stuff.
On top of that Amazon’s cash pile is reducing – just $9.6b now. Remember Apple has $100b and has never had to contemplate a loss leader!