Amazon Kindle Fire As Loss Leader? Turns Out It’s A Huge Success

When Amazon announced that it would sell the Amazon Kindle Fire for $199, less than the cost to make it, analysts knew the company was hoping that the loss-leader would turn into a profit hub thanks to digital product sales and that is exactly what has hapened.

Amazon on Thursday announced that it has now captured more than half of the Google Android tablet market, far eclipsing competitors Samsung and Motorola. The company made that announcement by posting first-quarter profits that far exceeded analysts’ best expectations for the company. For example while net income declined to $130 million ($.28 per share) from $201 million ($.44 per share) one year earlier, it’s far better than the 6 cents per share analysts expected to witness.

An analyst for Macquarie tells Reuters:

“One of the concerns with the shift from physical to digital has been whether Amazon will be able to compete… They’ve done well in ebooks, but now it looks like they’re also doing well in other areas like video.”

How good was the news? Shares at the company soared by 15% during regular trading hours, adding $10 billion in market valuation to the company while earning CEO Jeff Bezos a cool $2.5 billion.

While profits have declined in the last year, those declines were only witnessed because Amazon has been spending massive amounts of money to build new development centers, expand its burgeoning web services infrastructure which now contains an estimated 1% of all web traffic and develop video content rights.

According to BusinessWeek:

“Revenue grew 34 percent to $13.18 billion, also beating the $12.91 billion analysts expected… The company said it expects revenue in the current quarter to grow between 20 percent and 34 percent, or to between $11.9 billion and $13.3 billion, which includes the negative impact of foreign exchange movements.”

For a web company that started as a book seller Amazon sure has come a long way and given Jeff Bezos’ desire to expand by taking big risks Amazon as an innovator will surely continue to emerge in the coming months and years ahead.