Amazon Customer Philosophy is behind Earnings Miss

Normally, when companies announce a 40%+ increase in costs and miss analyst expectations, their stock takes a hit. Last week, Amazon was no exception with its stock dipping by 15% immediately after the news, but it has subsequently recovered to $118-$120 where it has been for the last month.

The earnings miss was probably more sensitive this quarter because of the launch of Apple’s iPad. Ever since the iPad launch, Amazon’s stock has been trading 20% lower than its high this year at around the $150 mark—assuming that Amazon’s Kindle reader would be negatively impacted. Amazon did not disclose its Kindle sales but is seeing strong growth for Kindle and Kindle-based ebook purchases. Kindle is becoming to Amazon what iTunes is to Apple.

Long time watchers of Amazon will recall that we’ve seen this before. Amazon is not afraid of short term blips in its stock price, accepting them as a necessary evil when it comes to building a stronger, more competitive business.

Remember the market reaction when they announced free shipping?

Over the long term, Amazon has not disappointed by being focused on doing what’s in the best interests for its business long term. By investing heavily in sales and marketing, free shipping, and tech infrastructure, Amazon is confidently building an ever bigger business. Oh, and don’t forget that Amazon grew by 41 percent year over year in this last quarter, achieving $6.57 billion in revenues.

Amazon also stated that more than $1 billion in sales had been achieved via mobile devices over the last 12 months. That includes book downloads by Kindle and iPad users, of course, so it doesn’t (yet) signal the arrival of mass mobile commerce.

While Amazon hasn’t disclosed what made up its $1 billion of mobile sales, it’s a pretty safe bet that ebooks purchased using Kindle and the free Kindle reader for iPad and PC make up the bulk, and most of these will be repeat purchases.

This also shows the way in which their whole customer philosophy is geared towards repeat purchases. By forcing a full registration before making a first purchase, Amazon is willing to risk marginally fewer sales by not providing a ‘guest checkout’ facility, in return for a streamlined repeat purchase experience. Once a customer is registered, Amazon markets to them extensively using email, and when a customer returns to make their second purchase, it is done with a maximum of only six mouse clicks.