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Amazon Kindle Tablet Will Plump Revenue and Disrupt Market

Companies / Tech Stocks Sep 13, 2011 - 07:24 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleDavid Zeiler writes: A rumored Amazon Inc. (Nasdaq: AMZN) Kindle Tablet will deliver billions of dollars in fresh revenue next year.

In addition to its hardware sales, the tablet will provide a quick and convenient way for Amazon to capture a bigger chunk of the digital media market and allow customers to buy any of its millions of offerings from almost anywhere.

The 7-inch tablet is expected to appear within the next month or so and cost just $250. Such a low price from a trusted brand like Amazon will disrupt the entire tablet market.

"A proprietary tablet would allow Amazon to widen itscompetitive moat, improve consumer experience and benefit from the rapid growth in mobile usage," Jefferies & Co.'s (NYSE: JEF) Youssef Squali wrote in a report.

Although analysts expect Amazon to make little profit from the tablet itself, its potential for selling more of its digital wares such as e-books, movies, music and Google Inc. (Nasdaq: GOOG) Android apps is boundless.

The Kindle e-reader shows how hardware can drive media sales. It has helped Amazon capture 90% of the e-book market.

The Kindle e-reader will account for 9.9% of Amazon's total revenue next year, just five years after its debut, according to Citigroup Inc. (NYSE: C) analyst Mark Mahaney. Mahaney estimates about half of that revenue, $6.1 billion, will be from sales of the device, with the other half from e-books.

An Amazon Kindle Tablet will open up multiple digital avenues of growth.

Take online video sales, for example. Amazon has just 4.2% of that market, well behind the 65.48% share of Apple Inc.'s (Nasdaq: AAPL) iTunes Store.

In terms of additional revenue, the Kindle tablet could quickly rival that of the e-reader.

It Starts to Add Up
Squali estimates Amazon will sell 6 million tablets in 2012, which would add $1.65 billion to the company's top line.

But if the Amazon Kindle tablet replicates the performance of its e-reader sibling, it will add another $1.65 billion in revenue from increased digital media sales.

Forrester Research Inc. (Nasdaq: FORR) has offered an even more optimistic prediction for the Amazon Kindle Tablet, projecting sales of between 3 million and 5 million units in the upcoming fourth quarter alone.

If Amazon sells even 3 million tablets per quarter, the annual rate of 12 million would double Squali's revenue projections. That would deliver about $6 billion in revenue -as much as the e-reader is expected to deliver, but in its very first year.

The entire Kindle family would account for about a quarter of Amazon's revenue and figures to be a primary source of growth as more customers start using the tablet to shop on the site.

Amazon already has put several other pieces into place to encourage more shopping and more spending.

An editor at TechCrunch who gained access to a prototype earlier this month reported that Amazon has modified the device's Android-based interface to make its software and retail services prominent and easy to use. Customers have one-click access to the Kindle reader app, Amazon's Cloud music player and Amazon's Android Appstore.

Amazon also has started testing a less-cluttered redesign of its Website that will work better on tablets and other mobile devices, such as smartphones.

Mobile Market Turmoil
Because Amazon's motivation for building a tablet has more to do with increasing overall sales, it can afford to break even on the hardware or even take a loss, giving the retailer a far better chance of succeeding in a crowded market dominated by the iPad.

"Not only does Amazon have the potential to gain share quickly, but its willingness to sell hardware at a loss, as it did with the Kindle [e-reader], makes Amazon a nasty competitor," analyst Sarah Rotman Epps of Forrester Research wrote in a report last week.

That spells trouble for other tablet-makers. Until now companies like Samsung Electronics LTD (PINK: SSNLF), Research in Motion (Nasdaq: RIMM) and Motorola Mobility Inc. (NYSE: MMI) have had their hands full just fighting the iPad juggernaut.

Most have experienced sales in the tens of thousands compared to the iPad's 30 million. Hewlett-Packard Co. (NYSE: HPQ) announced last month it would exit the business entirely.

Competing e-readers won't fare much better, particularly Barnes & Noble Inc.'s (NYSE: BKS) Nook Color, which this past summer surpassed the Kindle as the No. 1 e-reader.

The Nook Color, with its tablet-like color touch-screen and Android operating system, lured many Kindle customers away, even though it costs nearly twice as much -$250 versus $139 for the base-model Kindle.

With Barnes & Noble expected to release a new Nook Color with even more tablet-like features before the end of September, the $250 Amazon Kindle Tablet no doubt is intended to take back the e-reader crown in addition to creating a foothold in the tablet market.

Challenge to Apple
It may be Apple that has the most to worry about.

"Apple sells software and services, but the lion's share of Apple's revenue still comes from hardware, which makes it vulnerable to a company, such as Amazon, that isn't seeking profit from hardware sales," said Rotman Epps.

Although the Amazon Kindle Tablet is well short of the iPad's specifications, with its smaller screen, lack of cameras and just a single-core processor - it will cost half of the low-end iPad.

More critically, Amazon's digital media products from music to apps will compete directly with Apple's iTunes Store. Its Cloud Drive will go head to head with Apple's soon-to-launch iCloud service.

The iTunes Store raked in a respectable $1.6 billion out of Apple's total revenue of $28.57 billion last quarter - revenue Amazon is aiming to put in its own pocket.

Amazon also could ramp up the threat to the iPad if it produces a more robust 10-inch model next year, as many analysts suspect it will.

Finally, Amazon is expected to bundle its tablet with juicy incentives that will serve to encourage more shopping, such as a free membership in Amazon Prime, which normally carries $79 annual fee. Perks of membership include unlimited two-day shipping, no minimum for free shipping and access to Amazon's Instant Video service.

All evidence points to the Amazon Kindle Tablet being a serious moneymaker for the company going forward.

"It looks like a killer product," said Fred Wilson, a venture capital investor and principal at Union Square Ventures in a recent blog post.

Source :

Money Morning/The Money Map Report

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