Does Kindle Fire HD Torch the iPhone 5 Release?
Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It has been a week of critical product launches by some of the biggest names in technology, but perhaps none will prove as important as the release of Amazon's (NASDAQ: AMZN) new Kindle Fire HD. While it is nearly impossible that anything short of the second coming could fully upstage the pending release of Apple’s (NASDAQ: AAPL) iPhone 5, Amazon’s new product line should give the men and women in Cupertino something to think about. The new tablet – yes, not a smartphone so not a direct competitor with the iPhone 5, but with the iPad – combines several upgraded features at both the high and low ends of the price spectrum. Even with all this glitz, it is the data package that goes with the 4G LTE versions that investors should be most aware of when assessing the release. Overall, the new Kindle Fire HD should give investors a serious reason to consider buying a stock with a forward P/E over 105.
The New Line of Kindles
In its Thursday release announcement, Amazon rolled out three new Kindle options – more if you consider every permutation of memory capacity and 4G LTE capability. The flagship device will feature an 8.9-inch screen, a front-facing HD camera, HMDI port, a 4G LTE chip and a hi-res display. Depending on the memory capacity selected, the device will retail for $499 or $599. A version with a 7-inch screen will also be available, as will an updated version of the existing Kindle Fire. The non-HD version will retail for $159 dollars, making it one of the least expensive full-function tablets on the market. Amazon’s $79 e-readers will continue to be available and the company promised an update on those at a later date.
Kindle As a Service
While the hardware itself looks to be an impressive combination of functionality and value, it is the service element of the devices that should be the focus of investor interest. To begin with, models that include the 4G LTE chip are bundled with a data package. The package costs just $49.99 per year and gives subscribers 20 GB of cloud storage to go with the 250 MB of download data per month. As a bonus, the service includes a $10 credit for the Amazon App store; this should serve as a growth engine for raising awareness of the company’s growing app capabilities.
The data package is a part of an overall service philosophy that Amazon is taking towards the product line. Company CEO, Jeff Bezos, said “People don’t want gadgets anymore. They want services that improve over time. We want to make money when people use our devices, not when they buy our devices.” This approach means that the company makes relatively little on the devices, but this should allow them to really push competition with other tablet makers.
What Does it All Mean?
The release of the new service-driven Kindle Fire line could have real implications for both Apple and Google (NASDAQ: GOOG) Google’s recently-released Nexus 7 has done very well thus far, but as the Kindle Fire runs on Android, the Amazon products could be disruptive to the Nexus 7’s initial success. With the lower price on the Kindle Fire and the same price for the 7-inch Kindle Fire HD, Google shareholders should take note of Amazon’s sales.
Apple is rumored to be planning the launch of a smaller, lower-priced iPad later this year. This development from Amazon makes the need for that product in its arsenal even more important. The release of Amazon’s lower-end options may have an impact on the pricing plan that Apple adopts when the smaller iPad is released. While next week’s iPhone 5 launch is likely to still be the technology announcement of the month, if not the year, Amazon has created enough buzz with the Kindle Fire HD that Apple shareholders should at least put Amazon more squarely on their radar screens. The Apple faithful will scoff at the idea that real competition exists, but prudent investors should watch these trends.
Amazon tends to look quite expensive on a valuation basis, but if the company could do anything to convince investors to look past the numbers, it has done it with this release. Similarly to Apple and Google, the stock is trading at the top of its 52-week range, so a pause in the climb should not be unexpected. That said, these stocks all want to climb and continue to ignore the resistance levels that had existed. Keeping these risks in mind, Amazon looks great.
Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, and Google. Motley Fool newsletter services recommend Amazon.com, Apple, and Google. 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.