But on the issue of price, Amazon needs help. The company already demands the lowest prices possible from its publishing partners, but a combination of low sales prices and massive investment in its shipping infrastructure means that, in many cases, Amazon’s profit margins are almost non-existent.
So while Amazon continues to expand its product offerings at a brisk clip, profit remains elusive.
“Amazon is really, really convenient and also very cheap, and this is why they are as sort of monolithic as they are,’ said Laura Miller, a New York-based author and publishing industry observer. “But they’re not very profitable and it’s not very clear how long they can sustain that.”
For years, investors were inclined to let Amazon generate minuscule profit, as the company continued to reinvest in what has become perhaps the most powerful and expansive Web-based store on the planet. But as of late, Amazon’s inability to make money has started to affect its perceived worth.
Late last month, the company reported earnings for the March quarter that were largely in line with analyst expectations. But its small operating profit of just $146-million (U.S.), as well guidance for an operating loss in the coming quarter, sent the company’s stock down almost 10 per cent on the day. Indeed, Amazon shares today trade at about $100 less than the $400 highs they reached at the beginning of this year – as BGC Financial analyst Colin Gillis puts it, “the stock is trading as if investor patience has come to an end.”
For the better part of 20 years, Amazon has commanded one of the loftiest price-to-earnings ratios of any public company in the world – despite not generating much profit. Instead, the company has grown by leaps and bounds in almost every other way. Its campus dominates much of downtown Seattle’s north end. More people work for Amazon today than its neighbour, 20 kilometres to the west, Redmond-based Microsoft Corp.
But if investor patience has in fact run out, as the reaction to the company’s last quarterly earnings may suggest, then Amazon will find itself under even more pressure to squeeze better margins from its content partners. And for a company as notoriously combative as Amazon, that process can sometimes get ugly.
Earlier this month, Hachette Book Group (HBG), one of the smaller of the major publishing houses in North America, found that its books were taking an unusually long time to ship through Amazon.
Normally, customers could expect the retail giant to have many of Hachette’s titles on their doorstep within a couple of days. Instead, the wait times were closer to four weeks – and in the meantime, Amazon suggested they purchase similar titles from other publishers, which would be delivered much quicker.
“We are satisfying all of Amazon’s orders promptly, and notifying them constantly of forthcoming publicity events and of out-of-stock situations on their website,” a Hachette spokesperson said in a statement. “Amazon is holding minimal stock and restocking some of HBG’s books slowly, causing ‘available 2-4 weeks’ messages, for reasons of their own.”
Amazon’s disputes with book publishers have been well-documented and often messy. Four years ago, during a dispute with the publishing house Macmillan over e-book prices, the online retailer simply removed a user’s ability to purchase Macmillan titles from the Amazon website – a tactic that can have immediate and profound financial repercussions for the publisher, especially given that Amazon controls somewhere between a third and half of the book market in the U.S.
At stake in the Hachette dispute is not only the publisher’s own sales, but also Amazon’s ability to muscle better terms out of its publishing partners. Both companies are caught up in a bitter fight over e-book pricing terms, with Amazon trying to get the lowest prices possible from the publisher to boost its anemic profit margins. An Amazon spokeswoman refused to comment on the matter.
According to some observers, part of the acrimony between Amazon and some of its content partners is likely a result of culture.
“Jeff Bezos admires people who are disagreeable and love debate and like to fight,” said John-Kurt Pliniussen, an associate professor at the Queen’s School of Business.