Amazon: Kindle, Aim, Fire
Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When one thinks of the big players in tablets, one thinks of Apple (NASDAQ: AAPL), Google (NASDAQ: GOOG), and possibly Microsoft (NASDAQ: MSFT), assuming the Microsoft Surface that is scheduled for release in October delivers. When one thinks about streaming content delivery, the most obvious name is Netflix (NASDAQ: NFLX), although others are coming on strong. In spite of these “industry-leading” names Amazon.com (NASDAQ: AMZN) has quietly become a legitimate player in each of these spaces, taking significant steps forward each day. While traders tend to love headlines, often the best long-term investments are in stocks that unobtrusively build a compelling presence in important industries. Amazon is just such a stock and should be included in most core portfolios.
The Tablet Wars
In yet another segment that is virtually defined by Apple, the iPad is bestselling tablet by a considerable margin. This is an enviable position when one considers that the tablet market is projected to surpass $66 billion in sales this year. Apple’s third generation iPad is expected to be joined by a smaller, and less expensive, version by the end of the year, as the company looks to shore itself up against challenges from lower cost competitors. Google’s Nexus 7 is one of those low-cost options that offer a lot of power for its $199 price tag; the device can also receive a memory upgrade for an additional $50. The Google tablet is a new market entrant and is putting the pressure on Amazon’s Kindle Fire. The Fire, which had reached 17% market penetration by sales volume during the last holiday season according to research firm IDC, fell back to 4% in the first quarter of this year. The current model is priced at $199, but does not offer the power of the Nexus 7; the Fire is ready for an update.
The wild card in the tablet space is Microsoft. The Surface, which is slated for release in late October, is designed to be the first productive tablet on the market. The Surface will include a cover that doubles as a keyboard and trackpad and the device should be capable of running a nearly-full version of the Microsoft Office Suite. This is a product for the others to watch, particularly as redesigns are planned.
Where Amazon has a true advantage over its competitors is in terms of its content. It has an integrated way to offer books, movies and music through its well established e-retailing efforts. In addition, the company is hard at work to enhance its gaming options and improve its hardware to make the Fire more competitive with other similarly priced devices. Amazon, which offers its lowest cost e-reader for $79, has built a strong contingent of loyal users who will likely remain with the Fire if it is made competitive. While Amazon is not yet poised as an iPad or Google killer, it continues to build a quiet, yet growing niche.
Did Somebody Say Content?
Aiding in the increasing importance of Amazon in a variety of fields is the company’s rise in the field of streaming content. The service offered by Amazon is somewhat quirky and only offers half as many titles as Netflix, but it is growing. It does not hurt that Netflix seems determined to do everything possible to alienate customers and vendors alike. In a major development, Amazon recently announced that it had reached an agreement with Epix for additional instant streaming content. While Epix will continue to provide content to Netflix, it will no longer be on an exclusive basis. Amazon continues to make inroads into the content business which will drive business for Amazon Prime, an integrated annual membership that gives purchasers access to both select content and free shipping on anything purchased on the retail side of Amazon.com.
Not only does the Epix deal help Amazon in the streaming side of its business directly, it should bolster the appeal of the Kindle Fire. Mobile content is likely to be the basis on which many battles are won and lost in this space, and Amazon is doing a great job at expanding its offerings. Where investors should be really impressed is in how well these new additions fit into the overall vision for the company. Many players in Amazon’s position simply start tacking on pieces at the periphery with no clear vision. In the case of Amazon, it is easy to see how each part enhances others and allows the whole to be greater than the sum of the parts. For all of these reasons, Amazon is well positioned to be a core holding.
Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, Google, Microsoft, and Netflix. Motley Fool newsletter services recommend Amazon.com, Apple, Google, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.