Amazon.com says its primary target is to sell tablet content not tablets themselves. The company is not seeing much profitability in the Kindle line of tablets, be it e-readers or the full-blown slate computers.
The main purpose of the largest e-retailer in the world is to sell books, movies and television shows, especially the ones that are Kindle-specific. However, the new line of tablets have some potential of getting profitability to the company.
The company announced seven new tablets at September 6 event in Santa Monica, California. The new line of slates range from basic reader at $69 to the premium 4G LTE version at $599. The new tablets also have different screen sizes. The upper two devices boast 8.9-inch HD screens, while the others have traditional 7-inch displays.
According to several analysts, the company is not making profits from the Kindle series. Instead it is incurring losses just to sell the primary commodity, Kindle-based content.
According to an estimate, the original Kindle Fire launched last year inflicted the company with almost $3 loss on every unit. This does not bode well in the eye of the investors, who would eventually want Amazon to make profits from the tablets.
“Investors are giving Amazon a free pass right now, but at some point, Amazon has to start making money,” said Sterne Agee analyst Shaw Wu. “I’m not sure that reselling content is the right way to go.”
Though Amazon is making profits on the sales of online content, the year-by-year profitability is decreasing. EPS, though in positive, has fallen in the previous six quarters. In the last quarter, Amazon shelled out profit of a cent, minus items, per share.
However, the strategy seems to have worked for the e-retailer. Its operational revenues increase 29 percent compared to the year-ago figures. Its shares are up 50-plus percent this year as well.
We want to make money when people use our devices, not when they buy our devices,” Amazon’s founder and CEO Jeff Bezos said unequivocally at the product unveilings.
The company said in a report last month that the sales are increasing exponentially on Amazon Prime, a premium membership by Amazon, since the release of Kindle Fire in November last year. The company is also expanding services on the membership.