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The analysis does not understand the business model. While it is correct that Amazon will be losing $70 per unit, which is huge, amazons real business comes from the sales of books and not Kindles. The reason to push the kindles is that they eventually push book sales.
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I think the analyst does understand the business model, but her job is probably not to look at the long term prospects. Her job is to tell people whether or not it is a good idea to buy Amazon stock right now. It would be a good idea if you can make a profit soon, not if you can make a profit in so many years; that's how the stock market works. All of us who ever worked in a publicly owned company probably know how difficult it can be to look further than the next quarter. 'Shareholder value' often seems to be synonymous with 'short-term profit for people who want to sell their shares'.
Actually, the fact that this analyst downgrades Amazon now does not rule out the possibility that she is aware that Amazon's short-term loss may lead to a higher market share in the long term: buying Amazon shares right now may not be the best way to make some quick money, but if you wait a couple of months... She may already be thinking about an upgrade of Amazon again later this year.