Amazon’s Year-End Deals Surge

Some of what Amazon calls its “Year-End Deals” are for sale at particularly large discounts their retail prices. These price cuts run through the end of the year.

Fashion items, digital games and Kindle books are on sale for as much as 70% off. Amazon might be making money on the Kindle books, since they are simply digital products. But outsiders cannot tell what Amazon has to pay to publishers or authors. It is harder for the company to make money on games like “Mortal Kombat Komplete Edition.” The price of the game, distributed by Warner Bros, has been dropped 75% from $19.99 to $4.99. Perhaps the price is meant to bring people to Amazon’s video game section, where it can sell consumers more expensive games. If so, it would appear to be a risky strategy.

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Amazon is offering up to 50% off on items that also likely cost the e-commerce company more than it sells the items for. These include items like security locks and horns. One of Amazon’s strengths is suppose to be instant video. It has cut the prices of some products in this category.

Finally, in the up-to-30% category are cameras, home audio, TVs and headphones. The margins on Samsung screens Amazon sells cannot be very good, or Samsung would have terrible margins on its own.

Amazon made a promise about the current quarter. Wall Street was not enthusiastic about the number, so if Amazon has a poor sales quarter, the reaction will be worse. When it released its most recent quarterly results, Amazon management forecast:

Fourth Quarter 2014 Guidance

Net sales are expected to be between $27.3 billion and $30.3 billion, or to grow between 7% and 18% compared with fourth quarter 2013.

Operating income (loss) is expected to be between $(570) million and $430 million, compared to $510 million in fourth quarter 2013.

This is part of the problem that has caused Amazon’s shares to drop by 22% this year.

Investors better hope the Amazon post-holiday discounts were created to just clear out a little inventory.

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