Groupon said it had revenue of $601.4 million, up eight percent, in the first quarter, and earnings of three cents. Those profits were in line with Wall Street expectations, but sales were better than the expected $590 million at the daily deals site.

The stock was up nearly 12 percent in after-hours trading to $6.21. Shares have risen 42.6 percent in the last six months, although that’s down 43.9 percent from a year ago.

There was no news of the search for a new leader for Groupon, which fired its CEO, co-founder Andrew Mason, in the quarter.

On a conference call later, co-CEO Ted Leonsis said that Groupon’s board had formed a search committee, but that it was “not in a hurry” to find a new company head.

But, in a statement, co-CEO Eric Lefkofsky said: “We are encouraged by our results, as our local revenues accelerated and our margins improved over the prior quarter.”

Anything up is good news for the suffering Groupon, which has been pilloried by Wall Street since its late 2011 IPO, although sentiment has improved since Mason’s ouster.

Gross billings, which is the amount consumers buy from Groupon overall, without subtracting payments to merchants, were up four percent, to $1.04 billion, on strong growth in North America. Sales were off internationally, though, by 9 percent.

International business, which has a bigger active customer base than North America, was the cause of much of Groupon’s declines, a problem execs have been trying to address with a new “One Playbook” strategy to consolidate systems.

On the conference call, COO Kal Raman called the situation “a tale of two Groupons.”

On a GAAP basis, Groupon had a loss of one cent, from two cents in the same period a year ago.

Groupon also said North American transactions on mobile devices accounted for 45 percent of the overall number, up from 30 percent last year, while email fell to less than 45 percent of the deals sold.

On a less happy note, Groupon said that its outlook for the second quarter would be below consensus.

Here’s the the Chicago-based Groupon’s official press release, as well as some tasty financial slides, so you can read it all for yourself:

GRPN

GRPN_1Q13_Earnings_Slides

In its first full quarter under new Chief Executive Hubert Joly, the Richfield, Minn., retail chain delivered improved free cash flow while gross profit margins fell less than expected despite stepped up efforts to match rivals’ prices.

Read the rest of this post on the original site »

Apple’s new guidance methodology doesn’t leave much room for those old-school beats of which the Street was so fond, and concerns about the company’s ability to innovate at the same pace and level as the Steve Jobs era continue to dog it. Then there are the perennial worries about gross margins. Are more iPhone and iPad buyers gravitating to less expensive entry-level models? Will that depress the average selling price (ASP) for those lines? And if Apple does release that low-cost iPhone it’s reportedly developing, what happens to ASPs then?

There’s no question that Apple’s last earnings report suggests that the company’s blistering tear of the past few years is slowing as it transitions from a growth stock to a value stock. To be clear, the Apple growth story isn’t yet over. Average weekly revenue in the company’s most recent quarter rose to $4.2 billion from $3.3 billion in the year-ago quarter; that’s not exactly stagnant. But even if Apple is … downshifting from growth to value, however slowly, the Street would do well to pause a moment amid its current panic and consider the level of customer loyalty that the company’s iOS platform likely commands. Because iOS is sticky, and it’s sticky in a way that drives increasing value to Apple.

Users of iOS are spending a ton of money in the iTunes ecosystem. Indeed, Deutsche Bank analyst Chris Whitmore estimates that, cumulatively, they’ve spent some $54 billion on content and apps. In other words, there are a lot of iOS device owners out there who have made significant financial investments in Apple’s mobile ecosystem, enough to make them think twice about switching to a rival platform.

“Many are questioning the loyalty of users to the iOS platform and whether in an era of increasing competition Apple owners will remain loyal to the platform or consider alternative devices (e.g. 5” Samsungs, etc),” Whitmore explains. “We think most iOS users will remain loyal, and the reasoning is primarily economic.”

Whitmore figures the typical iOS device owner has spent about $130 on apps. That’s a significant sum. Add to that the personal time invested in configuring and learning those apps, and the money spent on music, videos and books purchased from iTunes, and you’ve got a pretty compelling case for sticking with Apple — even if you have begun to fancy a handset from one of the company’s rivals.

Says Whitmore, “Many Apple families have multiple devices with content shared across the various form factors, so the money invested per Apple household is likely much higher in multi-iOS device families. Nevertheless, the point is the same; iOS users have made a significant investment in time and dollars into the iOS platform and as a consequence the switching costs are remarkably high.”

In afternoon trading, shares were up almost $10, touching $284. A year ago, the stock was sliding toward its 52-week low of $172.

Amazon usually grows at twice the rate of the overall e-commerce market during the fourth quarter. The last three months of 2012 should be no exception.

According to comScore’s final tally for the November-December shopping season, online spending in the U.S. totaled $42.3 billion, which was a 14 percent increase over 2011, but fell short of its expectations. Ahead of the Christmas holiday, comScore was anticipating a 16 percent jump in spending.

So, if it follows form, Amazon’s year-over-year growth should end up around 30 percent.

Amazon is forecasting net sales between $20.25 billion and $22.75 billion, representing a jump of 16 percent to 31 percent.

Youssef Squali, an analyst with Cantor Fitzgerald, wrote in a note to investors today that he is expecting Amazon to report revenue of $22.05 billion, up 27 percent. The consensus by analysts is a little more bullish, at $22.3 billion.

The positive forecasts are expected in part because of the performance by others, most notably eBay and Google, which already reported fourth-quarter earnings. EBay beat analysts’ expectations by a penny, boosted by strong sales from its mobile and marketplaces division (and it, too, was trading at a 52-week high today, with a share price above $56, up more than 2 percent). Likewise, Google’s cost-per-click business increased 2 percent compared to the prior quarter, reversing a long period of declines, partly because of a strong performance by its new Shopping group.

Interestingly, halfway through the month of December, a monster quarter by Amazon was not a done deal.

There were a few signs that sales had been soft due to one concern: Procrastination. As Amazon’s base of Prime users grows, customers are becoming more comfortable delaying purchases, since they know they can get free two-day shipping on qualifying items. Coupled with Amazon’s reputation for on-time delivery, customers were able to wait until Dec. 21 in order to get packages delivered by Christmas Eve.

Another closely watched metric for Amazon will be its profit margins.

Jeff Bezos, the company’s founder and CEO, has been particularly outspoken recently about sacrificing margins for the benefit of generating more free cash flow.

Cantor Fitzgerald’s Squali is anticipating fourth-quarter operating margins of 1.3 percent, but cautions that “we have little visibility into this metric.” Amazon spends a lot of money on building new distribution centers, offering price promotions and free shipping. It is also investing heavily in cloud computing, packaging free video streaming with Amazon Prime, and its hardware division, including Kindle.

Due to those investments, operating margins may be very low.

To that end, Squali says that any commentary by Amazon’s tight-lipped management team on Tuesday will be key for the stock’s performance going forward.

On the whole, analysts are expecting Amazon to generate a profit of 29 cents a share. Amazon left itself a lot of room with its earlier guidance, saying results could be anywhere from an operating loss of $490 million to an operating profit of $310 million, compared with an operating profit of $260 million in the year-ago period.

Tune in after the bell on Tuesday for live coverage of Amazon’s results.

Topeka analyst Brian White says his checks in Hong Kong and China indicate “insatiable” demand for the iPad mini, which launched in those countries in early November and December, respectively. Nearly all models of the diminutive iPad sold out in Hong Kong and China last week, with sources at Apple’s three retail stores in Hong Kong and eight in China reporting stock-outs or significantly constrained supply.

Says White, “Similar to Hong Kong, we are being told by contacts in China that the iPad mini is already more popular than the fourth-generation iPad.”

And that’s a point well worth noting. Because it’s clear proof of three things:

• The 7.9-inch form factor Apple settled on for the iPad mini is obviously a hit with consumers.
• While the iPad mini’s price may be too heady for some cost-conscious shoppers, it’s clearly not hamstringing sales. Apple predicted that consumers would be excited about the mini at $329, and it was right. (See “Apple Doesn’t Need a $200 iPad Mini.”)
• As Apple ramps up production of the device, it will only gather more momentum in China, and other markets as well.

“Prior to the China launch, we indicated that the iPad mini would be the ‘next big thing in China,’ and we believe this phenomenon is starting to develop,” says White. “In our view, the smaller form factor and lower price point will allow Apple to sell the iPad mini in more meaningful volumes versus the regular-size iPad.”

Now, that might have some effect on sales of the iPad. But as I’ve noted here before, analysts are pretty sure that the iPad mini creates more demand than it cannibalizes. So, in China and Hong Kong, as elsewhere in the world, Apple really does appear to be plugging into a largely untapped market that has been waiting for precisely the device the company is now offering. And that obviously bodes well for the iPad business overall, particularly given the mini’s margins. They may be smaller than the full-sized iPad, but they still range from 35 percent to 56 percent.

Kara Swisher reported yesterday that several Groupon board members have been considering replacing Mason with a new CEO.

Today, in an appearance at Business Insider’s Ignition conference, Mason admitted to the audience that his performance was under review.

“The stock is down 80 percent since the IPO a year ago, so it would be weird if they weren’t discussing if I was the right guy,” he said. “That’s their chief responsibility, and they have discussed it in the past.”

At a regularly scheduled meeting tomorrow, the company’s directors, who do have that fiduciary responsibility to Groupon’s shareholders, will be asking the tough question as to whether Mason should continue running the daily deals company, or if it makes sense to bring on someone more experienced.

If it were up to Mason, he’d stay: “If I ever thought I wasn’t the right guy, I’d be the first one to fire myself.”

While at the helm over the past four years, the co-founder has accomplished some pretty awesome milestones — Groupon became the fastest-growing company ever, and had the largest IPO since Google went public. In that time, the thirtysomething Mason has transformed from the office comedian and prankster with uncombed locks to someone who more gracefully conducts himself on conference calls and wears suits to public appearances. While onstage today, he said that the CEO needs to be someone who can attract a strong team, choose a winning strategy and then execute against that strategy.

“I’m flattered that people think that removing me would flatten these bumps,” he added.

Still, as many companies and boards realize, it takes a different skill set to grow a company than it does to run one at enormous scale, and whether the founder is the right fit to guide an organization through its next phase is not always clear. Does Groupon need an Eric Schmidt, the former Google CEO, who can be brought in to work closely with the company’s founders, or is Mason a visionary, like Mark Zuckerberg, who can remain successful if surrounded by a few heavy-duty lieutenants?

There is no denying that, over the past year, there have been some major management missteps, which Mason will ultimately have to take responsibility for as the chief executive.

Here are five of them that the board will likely be looking at tomorrow as part of its evaluation as to whether Mason should stay or go:

1. Accounting: Never Groupon’s strong suit; the daily deals company has struggled with its books since before it went public. Prior to its IPO, it was forced to restate revenue and also had to dump a controversial accounting metric that made the company look more profitable than it was. After it went public, the problems continued. Following its first quarterly report, Groupon had to restate its earnings to take into account higher-than-expected returns last year during the holidays.
2. Management turmoil: Earlier this month, the company finally appointed a COO after the seat sat vacant for more than a year. The company picked Kal Raman, who was promoted from SVP of global sales and operations, a job he was essentially doing anyway. This is the third attempt at having an operations guru, after burning through two others in 2011. Neither Margo Georgiadis, who came from Google, or Rob Solomon, who came from Yahoo, lasted long.
3. Maintaining margins: This one is a big deal. Groupon was deemed the fast-growing company because of its tremendous top-line growth, but the real reason the company was considered so valuable was because of its high margins. Local restaurants and merchants were willing to pay big dollars to get new customers in the door. But as sales have started to plateau, the company has started to augment its original business with the sale of physical goods, which has inherently thinner margins. The business is also entering extremely competitive waters where well-established players like Walmart and Amazon operate.
4. European troubles: Part of the company’s promise when it went public was world domination. Groupon was on track to become a household name across the globe by replicating its popular U.S. business model everywhere. But Europe has underperformed. Mason has admitted that Groupon was too focused on capturing market share in those markets and subsequently let innovation and customer and merchant satisfaction slide. As a result, Groupon’s gross bookings revenue have been severely affected.
5. Continued growth: All of the previous issues are well known, but the big challenge going forward will be for Groupon to keep evolving and finding ways for both merchants and customers to continue coming back. Groupon has identified a two-part approach. One includes the sale of Groupon Goods. The other bet is to build more tools and services to make local merchants happy. So far, those tools have included online scheduling software, mobile payments and point-of-sale hardware. As designed, these services are not expected to generate huge amounts of revenue, but rather to continue merchant interest in buying daily deals.

It is a clearly troubled record, and a tough road for a novice CEO to handle. But perhaps the most damning sign is the stock price. While it has risen recently, after Tiger Global Management bought a big stake — and went up almost 5 percent since news of Mason’s possible ouster was reported here yesterday — shares are still off more than 84 percent since Groupon’s IPO a year ago.

In other words, for Mason, it’s a long way down.

Here’s the latest to come of the pair’s improved relationship: You can now purchase iTunes credits for friends on Facebook using Gifts, the social giant’s major social gifting e-commerce initiative.

It works the same as all other purchases made through the Gifts product. Choose an item to send to a friend through Facebook (in this case, the iTunes digital gift), and you’ll pay via your credit card through Facebook. Right now, most of the options Facebook offers are physical goods like food, toys and apparel.

Lately, however, Facebook has geared up on digital gift card offerings. The company unveiled a series of new partnerships at a recent event, including subscriptions to Hulu, Pandora and Rdio. And the marquee partnership Facebook launched Gifts with was the Starbucks deal, which lets users send coffee cards to their friends via the service.

Facebook’s deep push into e-commerce appears right as holiday shopping season kicks off — it’s no coincidence that the iTunes deal is being announced on Cyber Monday — coming just before what is expected to be a banner retail sales season.

It also comes in the wake of a rather ugly season of downturn for shares of Facebook. Investors have questioned the company’s ability to generate sustainable long-term revenue from ads delivered to desktop and mobile users, and as a result, we’ve seen Facebook’s stock price slashed to around half of what it debuted at this summer. Facebook Gifts is a multi-platform initiative across the Web and mobile devices, not strictly beholden to generating revenue primarily from desktop users as is the case for the bulk of Facebook’s existing ad products.

So, does bringing Apple on as a Gifts partner actually amount to building out another meaningful revenue stream?

Perhaps, according to a little back-of-the-envelope math. Per Apple’s last 10-K, the company generated $7.5 billion from the iTunes Store during fiscal year 2012. Industry sources say that more than $2 billion of that revenue comes directly from iTunes gift cards. Sources also tell us that existing retailers who sell iTunes gift cards (like Best Buy, Target and the like) usually keep around 13 percent of each gift-card dollar sold.

So that adds up to around, say, a $260 million market size for physical iTunes cards split among participating retailers, of which Facebook will now be an active participant. That pie is small compared to Facebook’s overall revenue ($3.71 billion in 2011), but another digital product with less overhead and high demand is definitely a win for Facebook’s Gifts department. Not to mention the potential boost Facebook’s massive billion-user distribution could give on iTunes gift-card sales overall.

But the biggest takeaway here isn’t in the numbers; it’s in the fact that this deal even exists at all.

Facebook and Apple have had a long, troubled history of working together, particularly when Steve Jobs was Apple’s CEO. Perhaps the most poignant example came when the two companies failed to come to terms on integrating Ping — Apple’s doomed iTunes-based social network — with the Facebook API, due to what Jobs told us then were “onerous terms” that Facebook set forth.

With Jobs’s passing last year and Tim Cook now at the helm, initiatives like Facebook iOS and OSX integration and today’s iTunes Gifts partnership signal a new era in Facebook-Apple relations — just as Cook suggested would be the case onstage at our D: All Things Digital conference this past spring.

The relationship is no doubt still complicated. But Monday’s announcement is one step closer to peace between the two tech giants — just in time for the holidays.

I’m told Facebook is set to unveil a series of new partnerships with more retailers, bolstering the social giant’s gifting platform with more item choices for users to send one another. As it stands today, Facebook already has more than 100 retail partners for Gifts across industries such as food, fashion and kids’ toys.

But meanwhile, back in start-up land, myriad smaller social gifting companies are shifting into high gear with product updates and partner announcements of their own, hoping to keep out in front of the pack while the spectre of Facebook’s e-commerce play looms.

The most popular defense I’ve seen thus far? Trying to differentiate from Facebook, the 800-pound gorilla in the room.

I’m thinking of two start-ups in particular, Wrapp and Boomerang, which are focused on a market that Facebook isn’t fully immersed in: Digital gift cards. Wrapp and Boomerang users can give gift cards to their friends for free, made available through partnerships between retailers and the respective start-ups.

Both Wrapp and Boomerang offer similar value proposition stories: It’s good for users because you’re able to dole out freebies to your friends. And while retailers may have to eat five or 10 bucks on a free gift card, the potential for drumming up more foot traffic in their brick-and-mortar stores is worth the low upfront cost.

Right now, Facebook partners with only a handful of retailers to offer digital gift cards (though one of those, Starbucks, is a heavy hitter). Instead, Facebook’s focus is on physical retailers, those which tout more traditional mail-order presents like stuffed animals and cookie bouquets.

The problem is, there’s no guarantee that Facebook won’t flip a switch and decide to offer a similar service. In theory, all Facebook would have to do is hammer out a bunch of partnership deals with retailers who offer gift cards, and slot those into the list of choices Facebook users have when selecting gifts for their friends.

Whether Facebook goes that route or not, it’s possible that this isn’t a zero-sum game. Facebook could continue chasing the long tail of smaller, physical good retailers, like it seems to be doing currently. At the same time, companies like Wrapp, Boomerang, Gyft and Treater can handle the digital gift card market by tackling larger retail partnerships with national chains.

But the smaller guys aren’t taking any chances, keeping up momentum in the final days before holiday shopping madness is upon us. Wrapp is pushing out a larger wave of free gift cards from big brands like the Gap and Sephora the day before Black Friday, and announced a recent partnership with Blackhawk Network, essentially expanding Wrapp’s prepaid gift card cache by upward of 300 retailers.

We’ll have to wait and see what Thursday’s “Gifts” event will bring. The new partnerships may signal Facebook’s direction for Gifts, or perhaps the company will debut a surprise feature or acquisition to change up expectations entirely.

It’s sort of like staring at wrapped presents under the tree on Christmas Eve. The hardest part is always the waiting.

Big management shifts at Apple are now taking place.

Scott Forstall, the man in charge of its iOS mobile software efforts and a major and longtime executive at the tech giant, is leaving next year and will remain an adviser to CEO Tim Cook until then.

In addition, new retail head John Browett is headed out the door.

As part of the move, Apple noted that four key execs — Jony Ive, Bob Mansfield, Eddy Cue and Craig Federighi — would “add responsibilities to their roles.”

Ive gets “Human Interface”; Cue will take over Maps and Siri voice recognition responsibilities; Mansfield will run a new unit called Technologies, “which combines all of Apple’s wireless teams across the company in one organization”; and Federighi gets the big job of iOS and OS X.

More to come on what happened, but Forstall’s departure is very big news and a drastic move for such an important player in the tech space.

He had big fans and also many detractors for his sharp-edged personality, as well as what some described as exhibiting “growing open challenges” to Cook himself. Forstall had previously been called “CEO-in-waiting” in one media account in Fortune.

In addition, numerous sources noted persistent tension between Forstall and several other key execs, especially the powerful design chief Ive.

Veiled internal politics at Apple aside, Forstall has been a key part of Apple’s success over the last decade, especially in the development iPad and the iPhone.

Recently, there has been some level of ire at Apple over the troubled rollout of its own mapping software and the replacement of Google’s popular service, which was Forstall’s responsibility. (No, this move does not mean everyone gets Google mapping back, as one person asked me.)

Browett’s leaving is a little less of a surprise. Since he got the job, he has alienated many within the highly successful retail organization at Apple, many sources said.

His departure comes less than one year after the former Dixons CEO was hired by Apple to succeed Ron Johnson, who left for J.C. Penney in November 2011. Recently he’s been criticized by some Apple Store employees for unfriendly policy changes aimed at increasing Apple’s retail profit margins.

More to come, obvi, but here is the official press release from Apple, which it put out with the most understated title of all time:

Apple Announces Changes to Increase Collaboration Across Hardware, Software & Services

Jony Ive, Bob Mansfield, Eddy Cue and Craig Federighi Add Responsibilities to Their Roles

CUPERTINO, California — October 29, 2012 — Apple® today announced executive management changes that will encourage even more collaboration between the Company’s world-class hardware, software and services teams. As part of these changes, Jony Ive, Bob Mansfield, Eddy Cue and Craig Federighi will add more responsibilities to their roles. Apple also announced that Scott Forstall will be leaving Apple next year and will serve as an advisor to CEO Tim Cook in the interim.

“We are in one of the most prolific periods of innovation and new products in Apple’s history,” said Tim Cook, Apple’s CEO. “The amazing products that we’ve introduced in September and October, iPhone 5, iOS 6, iPad mini, iPad, iMac, MacBook Pro, iPod touch, iPod nano and many of our applications, could only have been created at Apple and are the direct result of our relentless focus on tightly integrating world-class hardware, software and services.”

Jony Ive will provide leadership and direction for Human Interface (HI) across the company in addition to his role as the leader of Industrial Design. His incredible design aesthetic has been the driving force behind the look and feel of Apple’s products for more than a decade.

Eddy Cue will take on the additional responsibility of Siri® and Maps, placing all of our online services in one group. This organization has overseen major successes such as the iTunes Store®, the App Store℠, the iBookstore℠ and iCloud®. This group has an excellent track record of building and strengthening Apple’s online services to meet and exceed the high expectations of our customers.

Craig Federighi will lead both iOS and OS X®. Apple has the most advanced mobile and desktop operating systems, and this move brings together the OS teams to make it even easier to deliver the best technology and user experience innovations to both platforms.

Bob Mansfield will lead a new group, Technologies, which combines all of Apple’s wireless teams across the company in one organization, fostering innovation in this area at an even higher level. This organization will also include the semiconductor teams, who have ambitious plans for the future.

Additionally, John Browett is leaving Apple. A search for a new head of Retail is underway and in the interim, the Retail team will report directly to Tim Cook. Apple’s Retail organization has an incredibly strong network of leaders at the store and regional level who will continue the excellent work that has been done over the past decade to revolutionize retailing with unique, innovative services for customers.

Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple has reinvented the mobile phone with its revolutionary iPhone and App Store, and is defining the future of mobile media and computing devices with iPad.

The expectation was $15.43 earnings per share and $55 billion in revenue.

The decline is in part because of just-announced revamps of nearly every Apple hardware product going into the holiday season. “There are costs associated with such dramatic change,” said Apple CFO Peter Oppenheimer on today’s quarterly earnings call with analysts. “We never before introduced so many new form factors at once.”

Oppenheimer called the upcoming period “the height of the cost curve,” saying that this always happens with new products but that they are often more spaced out. He noted that Apple also lowered the price of older iPhones and is putting pressure on its own margins.

It’s not just Apple’s new products that are thin. Where critics said the new iPad mini seems expensive, Oppenheimer contended that its gross margin is “significantly below the corporate average.”

He also noted that more than $50 billion of demand in a single quarter is no joke.

Apple CEO Tim Cook chimed in to say that Apple is managed for the long run, so it is “dedicated to making the very best products in the world” and “unwilling to cut corners.”

Asa Mathat / AllThingsD.com

How does it keep prices low, while still offering some of the latest hardware? Not to mention, how does it give away an ever-expanding catalog of movies and books for $79 a year in addition to free two-day shipping?

In an interview with AllThingsD, Amazon’s founder and CEO Jeff Bezos provided some insight into the company’s economics.

During the conversation, the jovial leader laughed often (even when I suggested he lacked focus for selling everything from jeans to hardware). He was also quick to point out that while Amazon’s approach to making money may be different from others, he doesn’t necessarily believe others are doing it wrong — rather, they’ve just discovered what works best for them.

Here’s most of the 20-minute interview:

What stood out to me from the presentation today was your comments on Amazon’s ability to make money despite offering low prices.

Jeff Bezos: We do not like the razor and razor blade model, where you lose money up front and then somehow make it up on the backend. We also do not like the other model, where you make a lot of money on the device, because it doesn’t follow our approach.

By the way, one thing I should tell you is that our approach is our approach, and we don’t even claim it’s the right approach. It’s not something that’s new, but it’s something we’ve done since the founding of the company. In my view, you set up the business in a way that is aligned with the customer, or you can set it up in odds with the customer. When you have the option, you should figure out a way to be in alignment. Sometimes that requires you to be more patient, so it’s part and parcel with long-term thinking.

But if you were a short-term-oriented share owner, you might say let’s get the money up front. That’s where I decline to say that approach is wrong. I won’t say that. But it’s not ours. I work with the teams to set up the business models.

How long-term are you thinking for the Kindle?

Bezos: This one is pretty straightforward. We don’t want to lose a lot of money on the device.

Are you losing any money?

Bezos: We don’t disclose the exact bill and materials, so I can’t answer that. But we don’t want to lose a lot of money on the device because then we’d really hate it if you put it in the desk drawer. On the other hand, if you make a lot of money on the device, I believe you haven’t earned your money on it yet, and then you’ve incentivized them (the customers) to stay on the upgrade treadmill that I mentioned today.

In a previous interview, you said it takes five to seven years for a new business to either break even or become profitable. And you are now in year five of the Kindle.

Bezos: True story. Typically, of course, they vary a bit. We are in year five, but actually you could say we are in year eight because we worked on the device — the Kindle one — three years before we launched it.

Then, that must mean you are making money?

Bezos: Again, we don’t disclose that, but you’re good — you’re really good [at asking questions]!!

You also have a non-traditional content model. It’s hard to break down Amazon Prime to see how that works when content is included along with two-day shipping.

Bezos: If you talk about the original genesis of prime seven years ago, it’s a shipping program and you get free two-day shipping on a million items. Today, it’s 15 million items. But Prime was designed to be about wanting faster delivery and not wanting to pay for it. … So, if you change something to an all-you-can-eat buffet, then you don’t feel guilty. That’s the genesis.

But that’s expensive just offering that.

Bezos: Yes, many things we do are expensive! Refer back to before when I said “take a deep breath and be patient.” Deep yoga breaths, people! Yes, it’s expensive. It’s not like we didn’t do some arithmetic ahead of time. Despite what some have said from time to time, Amazon is a for-profit business. So, we looked at some numbers, and we believed that this would be a good program for customers and for Amazon — that’s the alignment I’m talking about. But it’s also good for third-party sellers. Once we added fulfillment by Amazon, it’s good for sellers, it’s good for Amazon and it’s good for the customer because they get an all-you-can-eat two-day shipping buffet.

How do you jump to adding content to that?

Bezos: So, then, you fast-forward to a transitioning digital world. What we try to do is find things that customers would want. You can always be differentiated, but it’s hard to find differentiation that customers care about. So, we are always looking for things that customers would love, and in the digital world, the two things that we’ve come up with so far for Amazon Prime is Prime Instant Video. We are investing hundreds of millions of dollars in Prime Instant Video. It’s very expensive, and also the Kindle Owner’s Lending Library. Again, very expensive. Licensing “Harry Potter” to lend out for free, that’s not inexpensive. That’s basically what our membership customer gets and we think about what are the things they would care about and that we can afford to do and is sensible. We do the arithmetic on it, and we think it will create that alignment.

We are also hearing that studios would like you to decouple video from Prime and have you sell it as a standalone service, like Netflix.

Bezos: There are a lot of studios, and they are not all like-minded. We have very good relationships with studios, and we just did a big deal with Epix a couple of days ago, so, yeah, I like our approach.

But could they make you change your approach?

Bezos: Well, it’s their content, so they can license it however they like, but they aren’t all like-minded. We are trying to offer people a service they like, so I’m very confident that we can find content for them.

Let’s switch back and talk about the new devices; clearly, you are trying to have a whole family of devices to offer customers.

Bezos: Yes, at different price points. $199, $299, and $499.

Do you see people owning more than one?

Bezos: I see people for sure owning one of these and one of these (pointing to the Paperwhite and Kindle Fire). And that’s already been happening. But families will own multiple tablets, and they do already, and the $159 Kindle with Kindle FreeTime will be perfect if they want to buy a tablet for kids. And, if your budget allows it, the large display with 4G/LTE, that’s the one you should get. If budget isn’t an issue, get the 4G/LTE Kindle and one of these (the Paperwhite), so if you read for a few hours, this is the perfect device because it’s so light.

You spent a lot of time going over Wi-Fi today. Clearly Internet access and accessibility is important.

Bezos: People don’t pay enough attention to [Wi-Fi]; it’s a mistake not to pay attention to it. These are connected devices. Think about it, you can buy more, but even just downloading photos from Facebook, how long do you want that to take? People have multiple devices these days, but they don’t necessarily want to download all their music to every device. But they do want to stream songs from any device they have with them. They also want to pull up Web pages fast — they go over Wi-Fi, too. It’s not just about buying things. These devices are not very useful unless they are connected to the Internet. The whole point is to connect to the Internet, and that means Wi-Fi. Even for 4G, you want Wi-Fi. You aren’t going to download a 3GB movie.

Is the price of the Kindle Fire HD with LTE ($499) subsidizing the data plan?

Bezos: I’m not going to break out the economics of any particular piece with you, but you’re right, it’s an astonishing price point.

How does special offers, or the advertising, play a role in the price point?

We had it on our E-Ink devices, but haven’t had it on the Kindle Fire. For those, it’s very good, no one really buys the non-special-offers version. Everyone buys the special-offers version. There aren’t two versions of this (pointing to the new 7-inch Kindle Fire HD). That was a decision we made because no one is willing to buy the non-special-offers version.

You’ve been a pioneer in the Android world, so tell me about your approach to using Android.

Bezos: We treat Android like Linux, and so it’s a base operating system layer. We have a large dedicated team that customizes Android and that’s what you see on the Kindle Fire.

Is it accomplishing everything you need to?

Bezos: Yeah.

Any plans to change things on that front?

Bezos: No, we like it.

What about extending the roadmap beyond these devices that we saw today?

Bezos: I can’t talk about our future roadmap, but we have some ideas about what we can do in the future. … You are exhausting me now, come on, Tricia! We just finished this one! You are such a demanding customer! What else do you got?!

But you do have demanding customers!

Bezos: We will certainly — not any time soon — but next year. We have some more things that we hope people will enjoy. It’s premature for me to talk about them.

Who are your competitors? People used to say it was Walmart.

Bezos: Well, you have to look category by category and business by business. In every place we do business, we have very sophisticated and competent competitors. And the other thing I’d say is that everywhere we do business, we operate in huge market arenas where there’s room for multiple winners. In retail, market sizes globally are more than $4 trillion, so you can build a very big company and still be in single-digit percentage of retail sales. So, that’s what I mean by there’s room for lots of winners. The device business, again, has huge opportunies and room for multiple winners. The same way for AWS — Amazon’s Web Services.

Anyone ever tell you that you have a focus problem?

Bezos: Hahahaha! That’s so funny because my Montessori teacher used to have to pick me up and move me from one task to the next.

So, no?

Bezos: So, no, I have never been asked that question. But I know where that’s coming from. I would say we do have a different philosophy from other companies — another common phrase is “stick to your knitting.” Our approach is, if we have a good idea, and if it’s something we think customers would care about, like AWS or Kindle Fire, then we don’t ask why do this, we ask why not do this? We have a high bar for doing those things. We don’t want to do me-too things. The people we’ve attracted over time to Amazon want to be pioneers. They want to be inventors. They want to do new things.

By the way, this is another place where I’d say what I’m outlining now is our approach. There are companies that are close followers and they are incredibly good at it, and they generate lots of returns for their shareholders, that’s also a difficult business. That’s just not us.

But one minute you are talking about inventing new antennas, and the next minute you are selling jeans.

Bezos: That is true. It is diverse. By the way, our apparel store is getting very exciting, too.

So, how do you manage your time?

Bezos: I try to spend my time on things that are at the intersection of what is important to the company and where I can add value. I found myself in a short meeting once about an intra-country tax dispute. The U.S. and the Japanese authorities both thought we should pay a tax, and each thought it should go to the other and vice versa. I was in this meeting and I realized that not even a normal lawyer could understand this issue, and not even a tax lawyer could understand this issue — only an international tax lawyer could understand. I said I don’t know if this is important, but I can’t add value here.

A lot of my time these days is spent on things, like apparel, because I think there’s a tremendous amount of invention going on there, especially in the Web presentation of apparel. I’m also spending a lot of time in our digital business, including content and devices. Again, there’s a lot of room for invention.

Final question: What’s the message that you wanted people to walk away with today?

Bezos: That we have the best tablet at any price. Last year, we wanted to build the best tablet at a certain price. And, this year, we wanted to build the best tablet at any price. Take away the price and it’s still the best tablet. It also happens to be only $499.

So, why did the company’s stock fall a jaw-dropping 20 percent?

In a nutshell: During the quarter, most of the company’s growth came from its lower-margin products business and not its super-lucrative coupons business.

Groupon Goods, which sells everything from bed linens to yogurt-making kits, surpassed $200 million in annualized revenue in the quarter.

While that’s impressive for the nine-month-old business, investors and analysts have a good reason to be bummed. Sales from Groupon Goods, along with other items the company sells directly, accounted for 12 percent of revenue during the period. When excluding these items, revenue actually fell 7 percent compared to the first quarter.

Additionally, since Groupon purchases some of these items in advance, its expenses went up. In the second quarter, Groupon’s so-called “cost of goods sold” increased to 24 percent of sales, up from 14 percent in the year-ago period, explains The Wall Street Journal.

In a detailed analysis of this trend, Business Insider’s Henry Blodget said: “Groupon’s core business … is now shrinking.”

The chart on the left illustrates this well.

In the second quarter, you can see how the company’s revenue is no longer increasing by leaps and bounds. Additionally, the company blamed some of the period’s difficulties on economic woes in Europe and foreign exchange rates. For example, Groupon said revenue increased 45 percent year over year, but would have jumped by 53 percent if the impact of foreign exchange was eliminated.

But it’s the core business that most investors find themselves concerned with. Going forward, the company is offering a conservative forecast. In the third quarter, it expects revenue to total $580 million to $620 million. Meanwhile, analysts are expecting revenue of $605.5 million, or slightly above the midpoint.

During the conference call, executives declined to discuss margins for Goods, which is really at the heart of the matter.

“The success we’ve had on Groupon Goods is a reflection of our consumer brand,” said Groupon’s Chief Andrew Mason, who added that the opportunity reminded him of the company’s early days. “Our customers think of us as a way to find unbeatable prices.”

In after-hours trading, the company’s stock fell nearly 20 percent to $6.06 a share to hit a new all-time low.

Revenues were $11.6 billion, up 6.6 percent from the year-ago quarter, while per-share earnings on a non-GAAP basis were 48 cents, versus 42 cents a year ago, up 14 percent. That’s essentially right in line with what the consensus of Wall Street analysts had expected Cisco to report: $11.58 billion in sales, and 47 cents in per-share of earnings, with a penny-per-share beat on the EPS front.

I’m going quickly through the numbers, but here’s the announcement in full so you can look for yourselves. I’ll be dialing in to the conference call shortly and will be talking to CEO John Chambers after that.

Cisco shares are headed lower in after-hours trading. As of 4:45 pm ET, shares are down 48 cents to $18.30, or 2.5 percent.

Update: Cisco just issued its guidance on the conference call. CFO Frank Calderoni says that Cisco expects to report revenue to grow 2 percent to 5 percent year over year in the fourth quarter. It also expects to earn a gross margin in the range of 61 percent to 62 percent on a non-GAAP basis. Operating margins should be 26.5 percent to 27.5 percent, up about a point from the year-ago quarter. EPS will be 44 to 46 cents a share. The outlook is lower than the consensus of 49 cents.

On this, the shares have continued to fall after hours. Cisco shares are now, as of 5:02 pm ET, down more than 8 percent, or $1.55, to $17.23. Investors clearly don’t like what they see. Tomorrow looks like it’s going to be a rough day.

SAN JOSE, CA–(Marketwire -05/09/12)- Cisco (CSCO)

Q3 Net Sales: $11.6 billion (increase of 7% year over year)

Q3 Net Income: $2.2 billion GAAP (increase of 20% year over year); $2.6 billion non-GAAP (increase of 11% year over year)

Q3 Earnings per Share: $0.40 GAAP (increase of 21% year over year); $0.48 non-GAAP (increase of 14% year over year)

Cisco, the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its third quarter results for the period ended April 28, 2012. Cisco reported third quarter net sales of $11.6 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.2 billion, or $0.40 per share, and non-GAAP net income of $2.6 billion, or $0.48 per share.

“We delivered solid results this quarter with record revenue and non-GAAP earnings per share,” said John Chambers, Cisco chairman and CEO. “We are successfully executing against our long-term strategic plan of growing profit faster than revenue, and in a cautious IT spending environment, we continue to outperform our competitors.”

Chambers continued, “In a world of clouds, video and mobile device proliferations, the role of the intelligent network has never been greater and our value proposition with our customers is the strongest it has ever been. Our vision and strategy is focused on the right market transitions, and I want to thank our shareholders, employees, customers and partners for their ongoing commitment to Cisco.”

GAAP Results

Q3 2012 Q3 2011 Vs. Q3 2011
—————- —————- —————
Net Sales $ 11.6 billion $ 10.9 billion 6.6%
Net Income $ 2.2 billion $ 1.8 billion 19.8%
Earnings per Share $ 0.40 $ 0.33 21.2%

Non-GAAP Results

Q3 2012 Q3 2011 Vs. Q3 2011
————— ————— —————
Net Income $ 2.6 billion $ 2.3 billion 10.9%
Earnings per Share $ 0.48 $ 0.42 14.3%

Net sales for the first nine months of fiscal 2012 were $34.4 billion, compared with $32.0 billion for the first nine months of fiscal 2011. Net income for the first nine months of fiscal 2012, on a GAAP basis, was $6.1 billion, or $1.13 per share, compared with $5.3 billion, or $0.94 per share, for the first nine months of fiscal 2011. Non-GAAP net income for the first nine months of fiscal 2012 was $7.5 billion, or $1.38 per share, compared with $6.8 billion, or $1.22 per share, for the first nine months of fiscal 2011.

A reconciliation between net income on a GAAP basis and non-GAAP net income is provided in the table on page 5.

Cisco will discuss third quarter results and business outlook in a conference call and webcast at 1:30 p.m. Pacific Time today. Call information and related charts are available at http://investor.cisco.com.

Other Financial Highlights

Cash flows from operations were $3.0 billion for the third quarter of fiscal 2012, compared with $3.1 billion for the second quarter of fiscal 2012, and compared with $3.0 billion for the third quarter of fiscal 2011.

Cash and cash equivalents and investments totaled $48.4 billion at the end of the third quarter of fiscal 2012, compared with $46.7 billion at the end of the second quarter of fiscal 2012, and compared with $44.6 billion at the end of fiscal 2011.

During the third quarter of fiscal 2012, Cisco repurchased 27 million shares of common stock under its stock repurchase program at an average price of $20.28 per share for an aggregate purchase price of $550 million. As of April 28, 2012, Cisco had repurchased and retired 3.6 billion shares of Cisco common stock at an average price of $20.47 per share for an aggregate purchase price of approximately $74.3 billion since the inception of the stock repurchase program. The remaining authorized amount for stock repurchases under this program is approximately $7.7 billion with no termination date. During the third quarter of fiscal 2012, Cisco also paid a cash dividend of $0.08, or $432 million.

Days sales outstanding in accounts receivable (DSO) at the end of the third quarter of fiscal 2012 were 31 days, compared with 31 days at the end of the second quarter of fiscal 2012, and compared with 37 days at the end of the third quarter of fiscal 2011.

Inventory turns on a GAAP basis were 11.5 in the third quarter of fiscal 2012, compared with 11.1 in each of the second quarter of fiscal 2012 and the third quarter of fiscal 2011. Non-GAAP inventory turns were 11.1 in the third quarter of fiscal 2012, compared with 10.8 in the second quarter of fiscal 2012, and compared with 10.3 in the third quarter of fiscal 2011.

Select Global Business Highlights

Cisco announced its intent to acquire NDS Group Ltd., a provider of video software and content security solutions. The acquisition is expected to help Cisco’s ability to transform how service providers and media companies deliver next-generation video experiences to subscribers.
Cisco completed the acquisition of privately held Lightwire, Inc. Lightwire develops advanced optical interconnect technology for high-speed networking applications. The acquisition is expected to allow Cisco to deliver cost-effective, high-speed networks with the next generation of optical connectivity.
Cisco acquired privately held ClearAccess, Inc. The acquisition enhances Cisco’s network management capabilities and enables service providers to better deliver, manage and monetize their services.
Cisco announced strategic investments in Brazil to foster innovation, transformation and socio-economic development.

Cisco Innovation

Cisco announced it has updated its cloud-ready switching portfolio to enhance network virtualization with simplicity and scale.
Cisco announced a successful demonstration and validation of its coherent 100G dense wavelength division multiplexing solution, exceeding 3,000 km in reach without the need for regeneration. This distance is 50 percent farther than any non-Raman alternative solution on the market today.
Cisco introduced the industry’s first carrier-grade, end-to-end Wi-Fi infrastructure to deliver next-generation hotspots. The technology is designed to deliver seamless mobile experiences and enables operators to support a continuing expansion of mobile traffic, devices and new services.
Cisco announced innovations across the Cisco Unified Computing System® (UCS) that quadruple memory capacity, double switching capacity and simplify management for large-scale Cisco UCS® deployments.
Cisco introduced new Linksys Smart Wi-Fi Routers with app-enabled capabilities for new home experiences. The three new routers offer wireless performance and support for Cisco Connect® Cloud.
Cisco announced it expanded its small business product portfolio with new wireless access points, routers, switches, unified communications and partner-managed service offerings.
Cisco and NetApp announced FlexPod was the first data center infrastructure solution to be validated by Microsoft for the updated Microsoft Private Cloud Fast Track 2.0 program.

Select Customer Announcements

TELUS announced it has deployed key components of the Cisco Videoscape™ platform to extend its Optik TV services to mobile devices.
Cisco announced it has been chosen by Fastway Transmissions Private Ltd. to facilitate cable digitization deployment across its customer base in India. Fastway is expected to deploy more than two million next-generation digital set-top boxes from Cisco during the next two years.
Magyar Telekom rolled out 4G LTE services with Cisco mobile internet solutions. Magyar Telekom is Hungary’s largest telecommunications company.
IPLAN chose Cisco technology for its newest data center which is expected to be launched in June 2012. IPLAN is a leader in telecommunications and cloud computing services for small and medium-sized businesses in Argentina.
Videotron launched its enhanced illico digital TV service with Cisco’s HD set-top box platform. Videotron is a leading Canadian telecommunications operator providing communications and broadband entertainment services.
Peru Credit Bank implemented the Cisco Unified Communications system to increase business flexibility and reduce costs.
Kabel Deutschland (KD) selected Cisco CRS-3 routers for its Internet Protocol Next-Generation Network core to meet demand for video and broadband services. KD is Germany’s largest cable operator.
Netelligent announced that it will collaborate with Desktone, Inc. to offer cloud-hosted virtual desktops. These cloud-based solutions will include Cisco UCS, the Desktone desktops-as-a-service (DaaS) platform and NetApp storage systems.

Editor’s Note:

Q3 FY 2012 conference call to discuss Cisco’s results along with its business outlook will be held at 1:30 p.m. Pacific Time, Wednesday, May 9, 2012. Conference call number is 888-848-6507 (United States) or 212-519-0847 (international).
Conference call replay will be available from 4:30 p.m. Pacific Time, May 9, 2012 to 4:30 p.m. Pacific Time, May 16, 2012 at 866-493-8039 (United States) or 203-369-1749 (international). The replay also will be available via webcast from May 9, 2012 through July 20, 2012 on the Cisco Investor Relations website at http://investor.cisco.com.
Additional information regarding Cisco’s financials, as well as a webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, May 9, 2012. Text of the conference call’s prepared remarks will be available within 24 hours of completion of the call. The webcast will include both the prepared remarks and the question-and-answer session. This information, along with GAAP reconciliation information, will be available on the Cisco Investor Relations website at http://investor.cisco.com.

About Cisco

Cisco (CSCO) is the worldwide leader in networking that transforms how people connect, communicate and collaborate. Information about Cisco can be found at http://www.cisco.com. For ongoing news, please go to http://newsroom.cisco.com.

New data from Juniper Research shows that Apple’s revenue from the iPhone in the first quarter topped out at about $22.7 billion — a fair bit more than the $17 billion Samsung made from its entire handset portfolio, smart and feature. So while Samsung may be winning on global smartphone shipments, Apple is winning on a more important metric: Smartphone profitability. And for a very simple reason: The company has the highest margins around.

Reporting second-quarter earnings last week, Apple said that its gross margin was 47.4 percent. Meanwhile, Samsung’s was just under 13 percent. So, while Samsung is dominating smartphone shipments, Apple is dominating the smartphone industry’s pool of profits.

The company also raised its full-year earnings projection.

IBM has consistently moved to higher-margin businesses and away from crowded fields where price competition can be steep. IBM last week agreed to acquire Varicent Software Inc., which provides software that analyzes compensation and sales performance, for an undisclosed amount.

Read the rest of this post on the original site »

The document reveals that in RIM’s February 2012 fiscal year, gross margins on hardware fell to 20 percent from 36 percent on a GAAP basis, and to 25 percent on a non-GAAP basis. And, according to Jefferies analyst Peter Misek, if you factor operating costs and inventory charges into those numbers, hardware-operating margins slip into negative territory: -8 percent on a GAAP basis; -3 percent on a non-GAAP basis, or -4 percent on an adjusted non-GAAP basis.

Nasty numbers, all of them. So which is the most accurate?

Misek believes it’s the adjusted non-GAAP number, which excludes restructuring, litigation and goodwill-impairment charges, but includes the $752 million in inventory write-offs RIM took for the quarter. Some might argue that including those write-offs skews the numbers here a bit, but Misek points out that RIM has written off inventory in the last two quarters, and is likely to do so again in the next.

So, whether it was 8 percent, 3 percent or 4 percent, RIM’s hardware division probably spent more than it made. Indeed, that may well have been one of the drivers of the “comprehensive review of strategic opportunities” CEO Thorsten Heins announced after the company reported abysmal fourth-quarter earnings. But that review isn’t likely to do much for the hardware business for some time. If hardware is in the red, then it’s probably going to remain there for a while longer — at least until the debut of RIM’s BlackBerry 10 devices. And that’s not scheduled to happen until late in the year.

Apple Inc.’s success selling consumer gadgets has pushed its share price above $500, cementing its place as the U.S.’s largest company, with a market capitalization of $475 billion. But its gargantuan size is making it difficult for Wall Street to get a big-picture view of the earnings and margins for other American corporations.

Read the rest of this post on the original site »

The comments follow a less than stellar fourth-quarter performance in which the gigantic e-commerce provider spent nearly as much money as it brought in the door — even during its busiest quarter of the year.

Profits for the quarter fell 58 percent, while annual earnings were cut nearly in half.

Some analysts were hoping that the end of the year would be a low point for margins and that Amazon would start growing in 2012 as it benefited from the steep investments made the prior year.

But that’s not part of the plan.

“We’re incredibly optimistic about the opportunity that we have, and that’s why we have invested the way we have and why we’re continuing to invest in the business,” said Amazon’s CFO Tom Szkutak in a conference call with analysts.

For clarity, Piper Jaffray analyst Charles Munster asked again: “So, your outlook in terms of investment philosophy hasn’t changed versus last quarter going forward?”

“No, no,” Szkutak said. “We are continuing to look as we always do. We learn every week, month and quarter about customer adoption. We are looking at a lot of positive things across the business in terms of adoption, specifically Kindle growth from a device standpoint and content that’s following that.”

Other categories seeing growth, he said, include clothing, consumables, consumer electronics and Amazon Web Services.

“There’s a lot of interesting opportunities that we continue to invest in. So we are pleased with the performance in Q4 and what it means going forward for us.”

Over the past year, Amazon has invested heavily in infrastructure, including 17 fulfillment centers around the globe. At the end of the year, it had 56,200 employees, up 67 percent year over year, with most of the hiring coming in operations and customer service.

It has also invested heavily in the digital content business, including the Kindle.

It’s widely assumed that Amazon is breaking even or taking a slight loss on the sale of each Kindle Fire. It’s also securing expensive partnerships with content companies across music, video and books, and giving some of that content away as part of the $80 Prime membership, which also includes free two-day shipping.

All of those are bets that Amazon is hoping will reap profits over the long term, as customers continue to consume after they purchase an e-reader or tablet or sign up for Prime.

So far, it’s too early to see how the investment is faring, especially when it comes to new categories.

“It’s very, very early,” Szkutak said, “but so far, we like what we see, so that’s why we are continuing down the path of adding more content and making Prime better. … Because we are investing a lot, we are making sure we understand it very well.”

A lot of details, like Kindle sales numbers, are still being kept under wraps, but he promised Amazon will someday share more about how it is doing.

Unfortunately, the market isn’t as patient. In after-hours trading, the stock was down almost 10 percent at one point. During the session, it ended up down, 8.7 percent, or nearly $17 , to close at $177.50 a share.

A new survey by the investment banking firm concluded that each Kindle Fire generates well over $100 in additional income, which more than makes up for the $2 to $3 Amazon reportedly loses on each sale.

“Kindle Fire unit economics are likely to be more favorable than consensus expectations, based primarily on frequency of digital goods purchases,” RBC Capital analyst Ross Sandler said in a research note to clients. “Our assumption is that Amazon could sell 3-4 million Kindle Fire units in Q4, and that those units are accretive to company-average operating margin within the first six months of ownership. Our analysis assigns a cumulative lifetime operating income per unit of $136, with a cumulative operating margin of over 20 percent.”

So: an additional $136 over the lifetime of the device.

How are Fire owners spending that money? Mostly on e-books. According to Sandler’s survey, 80 percent of Fire owners have purchased e-books, and 58 percent of those bought more than three of them within the first 60 days of ownership. Sandler figures that means the typical Fire owner will buy five e-books per quarter, generating about $15 net per quarter for Amazon (assuming an e-book ASP of $10).

Making up the remainder of that $136 sum? Apps, mostly. Two-thirds of the Fire owners Sandler surveyed had purchased at least one app. And 41 percent of those claimed to have purchased three or more. Sandler estimates that the typical Fire owner will purchase three apps per quarter, generating another $9 for Amazon.

Add to that video-on-demand buys and incremental purchases of physical goods, and you reach $136. Which isn’t bad at all, particularly if you’re multiplying it by the three million to four million Fires that Sandler expects Amazon to sell in its fourth quarter.

This morning, Yahoo said it had hired PayPal President Scott Thompson as its newest victim, oops, CEO.

(You can read my interview with him too, here.)

AllThingsD.com had reported the pending development last night — which is how we roll here.

Now we will roll into the conference call on the matter, and are hoping that the head of the lucrative eBay payments unit will make an appearance, given that he does not start until next week.

One piece of advice I will extend Thompson: I would refrain from cursing, as previous Yahoo CEO Carol Bartz did on her first outing. (She was fired in September, although not precisely for the cussing she so enjoyed partaking in.)

Here we go!

7:02 am: It’s on, with Thompson present.

Yahoo Chairman Roy Bostock begins, and he is “very excited, very excited.”

I’d be very excited if Thompson talked and not Roy, who has been to this particular Yahoo CEO rodeo a few too many times before.

Bostock is making promises that this time it’s going to be different. Really!

He also notes that the company will continue its “strategic review” — but who knows what that means now.

And he thanks Tim Morse, the interim CEO who is moving back to the CFO job. (Agreed — nice work, Tim!)

7:06 am: Scott Thompson is on and is “just thrilled” to be the new Yahoo CEO.

I like his accent, which seems like he might be from Boston. He does look and sound like Cliff Clavin, the mailman guy at the Beantown bar from the television classic “Cheers.”

Except, given he has been the darkest of dark horses in this CEO race, nobody knew Thompson’s name.

Thompson is saying all the right stuff, about wanting to increase shareholder value and such.

He sounds so hopeful! Urgency! Thoughtfulness! A bright new morning at Yahoo!

I have been to this rodeo before too, but I am still hoping this time it’ll work.

Scott, if you let me down, I might cry, because you sound so nice.

7:09 am Q&A time already.

Congrats from the Wall Street analyst peanut gallery.

Then, it’s right into a question for Bostock, about the progress of the Asian assets deal.

Also, is Thompson too much of a technologist and not a media dude?

Bostock wants to talk about only Scott, but notes that there will be “no slowdown and no delay” in the Asian process. And Thompson will be all onboard when he comes on board, folks.

Bostock sounds tired, but starts to talk about how a “great customer experience” is the key to the advertising business. He notes that Thompson knows how to do this, hence he’ll be fantastic.

“I have every expectation he’ll be out there calling on advertisers,” says Bostock. I would hope so, given that is where Yahoo makes most of its lettuce.

Bostock is saying Yahoo has been “treading water” and now needs to swim fast. Treading water? I wonder who the top honcho at Yahoo has been while the company has been listlessly dangling its legs in the drink?

Roy — that’s who!

7:15 am: Another analyst asks about margins.

Thompson is not having any of it! He is polite when asking for time to get on the job to make proper statements.

But he does focus on the need to build “great, innovative” products. True, but Yahoo has been incredibly unable to do this of late.

Thompson gives no specifics, though. My big idea: I would steal the self-driving car from Google.

7:17 am: A question about what the core of Yahoo is, and about what lessons Thompson is bringing from his experience at PayPal.

Well, he has not met the team — literally. Yahoo’s board consulted almost no one in the top ranks of execs on this appointment.

But Thompson “suspects” there is talent there. Given the recent attrition, he’ll need a big Inspector Clouseau magnifying glass to find it!

From eBay’s PayPal, he says that the key was balancing the customer experience with network effect and, well, blah, blah, blah Internet-speak.

I am still thinking shoplifting the self-driving car is the bestest idea.

7:20 am: A question about Yahoo’s display business versus Google.

Thompson notes it is too early for him to say — though he had better say soon! — but notes that data is key. He is a well-known by-the-numbers guy, and that is clearly where we are going at Yahoo, now that he is the big dog.

Thus:

“The data these Internet businesses create, the ability to use analytical technology to build a better businesses for your customers … I feel certain that wealth of data is going to be exploitable for next generation products, next generation experiences … My instinct says down in that data we’re going to be able to find ways to compete and innovate that the world hasn’t seen yet.”

I am really liking this accent, which is almost lulling. And so polite! Sources tell me that being “collaborative” was a big goal in this hiring.

7:22 am: A question about the identity of Yahoo, and whether it should be public or private.

Thompson harps on the need for innovation, and hopes it will be the future.

“I would not be here if I didn’t think it was possible,” says Thompson.

Bostock takes the public/private question. Yahoo will be public, he declares! Mostly, because it would be too pricey to take private.

“It’s a moot point,” he says.

7:25 am: More questions about what Yahoo is.

Thompson declines to run off the rails on this dicey one, but he says he believes that Yahoo has great assets.

It does. It’s just that it has been crashed many times — by the people who just hired him — right into a wall.

Just sayin’ — a self-driving car would have done a better job.

7:27 am: A brain-drain question, and more on Asia and on mobile.

Bostock butts in again. He said that Thompson will not be distracted by that, and will concentrate on the core business. Hush up, Roy.

Thompson says that he looks forward to meeting the peeps of Yahoo. (’Cuz he has not, as yet!)

He also loves mobile — which Yahoo has largely borked.

7:32 am: A content strategy question. Early days, so Thompson is still keeping his yap shut.

In this, he’s like the anti-Bartz. Is this good? It’s certainly different.

He says again that, “I can’t wait to meet” everyone at Yahoo. Vice versa, because this dude came from left field.

Thompson promises that he will be a “sponge.”

He closes by noting that he is “genuinely excited,” and says he believes in Yahoo.

Indeed, when it comes to Yahoo, you definitely gotta have faith.

But Amazon isn’t Netflix, which has to convince investors and consumers that its business isn’t fundamentally broken. Jeff Bezos and company have a much easier story to sell: Profits are down because they’re spending money on expansion.

A lot of the money is going into Amazon’s old business, CFO Thomas Szkutak explained on yesterday’s conference call — the company is building out dozens of new distribution centers to help it ship all the physical stuff its customers still order. And a lot of the money is going into its new digital business — in particular, the new Kindle Fire.

Amazon is ultracautious when providing any details about its business, and Szkutak didn’t break from that tradition yesterday. But he did go out of his way to play up the company’s investments in its new tablets.

And while he didn’t spell it out, he made it quite clear that the company was happy to lose money on the tablets in the short term because it could sell more stuff to Fire owners in the long run.

Here’s a partial transcript from Seeking Alpha; it’s a bit garbled, but much more useful than my chicken-scratch notes from the call. Note the repeated reference to the “lifetime value” of the gadgets [my emphasis added]:

We’re investing in our Kindle and Digital business [and] you’re seeing that reflected in our Q4 guidance as well … if you take a look at our Kindle business, for example, we’ve launched 4 new products at the end of September, and we’re very, very excited about those products. They’re at great prices, and they are certainly premium products … And [when] we think about the economics of the Kindle business, we think about the totality. We think of the lifetime value of those devices. So we’re not just thinking about the economics of the device and the accessories. We think about the content. We are selling quite a bit of Special Offers devices which includes ads. We’re thinking about the advertisements and those Special Offers and those lifetime value[s].

Szkutak hit the same points a few minutes later. Remember that Amazon is disciplined at saying very little on these calls. So when Szkutak hits these talking points repeatedly, it’s not an accident:

We have learned a lot over the past couple of years … since launching Kindle. … what we’re seeing certainly is that once customers purchase a Kindle and are carrying around this really massive selection at their fingertips, they’re buying more content. We’ve talked a lot about that on previous calls. But again as we think about the lifetime value … we look at the total economics which include the device, the accessories, the content, as well as any ad-based revenue and Special Offers. So those are the things that we’re looking at, as we think about the lifetime value of the device. And we like what we see. And so certainly as you think about Q4 and you think about the guidance that we’re giving, certainly we’re going to have a — we expect to have a record quarter in terms of device sales. And because of the back-end loading of it, you should assume that the content would, obviously, trail that device sale. The ad revenue would trail those device sales as well as the Special Offers.. But we’re extremely excited about both our electronic ink and fire devices … and we think that those will be great for share owners over time.

As long as we’re parsing the call, it’s worth noting that Szkutak repeatedly points out the value of advertising on its tablets. I’d previously assumed that the company thought of ads — several of the Kindle base models now come with “special offers” as the default option — as a way to defray the Kindle’s costs, so it could get more of them in customers’ hands. But it seems Amazon has bigger ambitions.

Again, it’s important to stress that Amazon’s gadget model is the opposite of Apple’s: Tim Cook sells media so he can sell iPads and iPhones; Bezos sells Kindles so he can sell books and videos and music and even advertising.

Apple has already established that its model works. Now we get to see Amazon’s theory really put to the test.

“Consumers who gush over the beauty and efficacy of Apple products rarely quibble or complain about Apple’s premium pricing,” Kelleher writes in a note to clients. “Behind the tech-weenie veneer on transformative products, there is an accountant’s soul presiding over the P&L at Apple.”

There are innumerable reasons why Apple is sitting atop a pile of $76.2 billion in cash and marketable securities — a conga line of insanely great products, savvy marketing and financial rigor. And together, they drove Apple’s operating margins from 12 percent in 2005 to 30 percent or more today; its revenue from $13.9 billion to an estimated $108 billion.

“Jobs did more than launch, in succession, the Mac, the iPod, the iPhone, and the iPad,” Kelleher says. “He created and nurtured an infrastructure where these products could be conceived, engineered, and brought successfully to market.The marketing apparatus is no less well-oiled than the engineering machine at Apple.”

Or the financial one, for that matter.

Realistically, Apple is so on point right now, has so much momentum in the market, that it is unlikely to stumble any time soon. Kelleher again:

“IPhone currently has a less-than 5 percent handset market share; yet everyone who holds or uses one, whether first-time phone buyer or Apple lifer, is struck with its simple beauty and efficacy. If iPhone “merely” doubled its handset market share, annual revenues would rise by $60 billion. With RIM on the ropes and the Android Empire showing cracks from Google’s purchase of Motorola Mobility, there is no reason to believe that 10% share is the ceiling for iPhone. … In other words, if newly-appointed CEO Tim Cook is no more than a caretaker, if he only presides over the ramp of existing products, he could easily ‘caretake’ the company from the current $100 billion revenue range to twice or thrice that size.”

But that’s not what Cook is going to do. He plans to keep the ball rolling at Apple and he knows how to do it, as he said in an all-hands memo to employees about a month ago.

“I want you to be confident that Apple is not going to change,” Cook wrote. “I cherish and celebrate Apple’s unique principles and values. Steve built a company and culture that is unlike any other in the world and we are going to stay true to that — it is in our DNA. We are going to continue to make the best products in the world that delight our customers and make our employees incredibly proud of what they do.”

Image via Jonathan Mak’s Tumblr.

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Steve Jobs Full Coverage »

Today’s stock market rout hit tech stocks hard, with most declining as much as the broader indices.

With the Dow Jones Industrial Average down 4.3 percent and Nasdaq off 5.1 percent, shares of Google, Microsoft, AOL and Apple managed to stay in that range of losses.

Not so Yahoo and LinkedIn, whose shares were off 7.8 percent and 9.6 percent, respectively.

LinkedIn, the business networking site which reported its second-quarter earnings today, saw its shares seesaw down and up and down and then up again today.

While its results were in line with Wall Street expectations, the company also created some worry after it said profit margins are going to be cut in half for the next quarter.

Still, after its huge fall earlier today, in after-hours trading, LinkedIn has recovered a bit and is now up five percent.

But Yahoo has continued its increasingly troubling stock drop after the markets closed. Its shares are now dipping below $12, which gives the Silicon Valley Internet giant a very low $15.6 billion valuation.

The company’s stock has dropped 34 percent in the past three months, as worries over a range of issues — from its Asian assets to its display advertising business to its talent drain — continue to be a drag.

The company also forecast full-year operating earnings would rise to “at least” $13.15 a share, compared with IBM’s January estimate of “at least” $13. Analysts polled by Thomson Reuters had most recently forecast $13.08.

Shares jumped 2.1 percent to $168.89 in after-hours trading on the strong results.

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Companies from South Korea’s Samsung Electronics Co. and LG Display Co. to Japan’s Toshiba Corp. supply key components such as memory chips and flat-screens used in the iPad. But LG Display’s parent company, LG Electronics Inc., as well as Samsung and Toshiba compete with Apple in the burgeoning tablet space with their own devices.

If the new version of the iPad launched Wednesday is as successful as the original version, these component makers stand to benefit from an increase in sales, analysts say. But their profit margins could slip in tablets given their late entry into the market and because more devices are being launched this year, intensifying competition.

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