Photo: Associated Press
Amazon is on track to deliver another solid quarter of earnings, according to Mark Mahaney at Citi who put out a note for clients last night.Yet, Amazon’s stock has been in funk lately. Year to date, it’s basically flat.
Part of the reason investors are shrugging at Amazon, says Mark, is fear that Apple’s iPad is going to wipe out the Kindle, and drag down Amazon with it.
Those fears are misguided. Here’s the case for being bullish on Amazon and the Kindle despite Apple’s looming entry into the eReader/eBook market:
- First: The Kindle and eBooks represents just 5% of Amazon’s revenue and likely profits. Even if the iPad made the Kindle franchise worth zero, there’s plenty of reason to have faith in the other 95% of Amazon’s business.
- Second: People are missing the grander point. The iPad is pitched as an eReader. A dozen other e-readers are coming to market. The eReader, and by extension, the Kindle, are now proven concepts that consumers are interested in. Amazon dominates the category now with Citi estimating 70% of the device market, and 80% of the eBook market. Even as its market share dwindles, the market at-large will grow. Amazon will benefit. Citi estimates Kindle unit sales at 3.5 million for 2010, up from 2.4 million in 2009.
- Third: In a recent comScore poll, awareness/intent to purchase a Kindle ran about even with the iPad. In that same poll, comScore found people want an eReader to browse the Internet, and check email, as well a read books. Mark thinks this is helpful reminder that 1.) people aren’t souring on the Kindle and 2.) the iPad is a different value proposition. The Kindle is a niche device built for people that want to read books. A smaller market for sure, but still a market. We’d add, the Kindle already has a browser. It’s pretty crappy and labelled “experimental,” but Amazon has job listings for people to develop a better web browser for the Kindle. Caveat: Adding a web browser wouldn’t be a great challenge from a technical perspective. It would change things from an economic perspective. Amazon buys wireless minutes and provides wireless coverage basically for free to Kindle users. The more more people use the web, the more that dynamic needs to be adjusted/figured out.
- Fourth: The Kindle is cheaper and due for an upgrade this year. The Kindle sells for $259 now. Freescale recently announced it has new a chip that could make the Kindle sell for $150. Mark says he could see a Kindle for sub $200. If Kindle is on the market for under $200 with a nicer browser, then it looks pretty good if you want a simple machine.
Here’s a table from Citi laying out estimates and economics for the Kindle: