Amazon (NASDAQ:AMZN) announced on Tuesday that Cyber Monday was the “biggest day ever” for Kindle sales. Yet this is not necessarily great news for the Internet retailer. As Fortune reported, when you sell a device at cost, as Amazon does with the Kindle, losses cannot be made up through sheer volume.
What is Wrong With Amazon’s Kindle Strategy?
The Kindle had an outstanding start to the holiday shopping season. “We’re excited that customers made this Black Friday and Cyber Monday the best ever for Kindle worldwide,” said the company’s Kindle Vice President Dave Limp in a press release.
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But Amazon’s Kindle strategy may be flawed. Since the beginning, the retailer has priced the e-reader at or below cost in order to bring customers to Amazon’s online store; on Cyber Monday, last year’s Kindle Fire was on sale for $129, approximately $72 below cost. As Chief Executive Jeff Bezos has said on several occasions, making a pointed reference to Apple (NASDAQ:AAPL), “We want to make money when people use our devices, not when they buy our devices…”
However, IBM’s report on Thanksgiving and Black Friday sales brings that statement into question. According to firm’s data, Kindles represented only 2.4 percent of online purchases made using tablets, while the iPad accounted for 88.3 percent and Barnes & Noble’s (NYSE:BKS) Nook accounted for 3.1 percent. Furthermore, data supplied by Monetate shows that sales via the Kindle decreased in the last quarter.
CHEAT SHEET Analysis: Does Amazon Have a High Quality Pipeline?
One of the core components of our CHEAT SHEET Investing Framework requires that companies consistently produce successful products or services. Amazon does just that with the Kindle, but, as IHS iSuppli noted earlier this month, the company is not making a lot of money on the device, indicating that the retailer may have problems with its pipeline in the future.
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