The Tablet Jungle: Amazon Fires Up New Kindle Models
Evan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Amazon Inc. (NASDAQ: AMZN) has recently announced that it will allow purchasers of its Kindle Fire tablet to pay an extra $15 fee to remove built-in advertisements. This change comes after Amazon has revealed four new, larger Kindle Fire tablet models. The new versions of the Kindle are priced from $159 to $599, less expensive than an average Apple (NASDAQ: AAPL) iPad costs. Amazon is seeking to challenge Apple’s dominant place in the tablet market, as well as keep Google’s (NASDAQ: GOOG) Nexus 7 at bay.
Amazon originally said that they would not allow an “opt out” option. This was met with widespread criticism and disdain from prospective buyers. But now, Amazon has completely changed course in an effort to appeal to consumers.
What will the result be from this change of course? Well, some consumers might not be too keen on having to pay a fee regardless of how much that fee actually is. On the other hand, some might be happy that they don’t have to see any more ads. It’s an implicit fact that Amazon keeps its prices low by showing ads on its product line, so consumers might not have a big problem with paying to keep ads off of their tablet.
Two much larger, long-term issues with Amazon are (1) their lack of transparency over sales numbers and (2) their eye-popping valuation. Since the original Kindle launch in 2007, Amazon has refused to divulge sales numbers for the device. Instead, the company has frequently praised how strong the Kindle’s performance has supposedly been. Each new Kindle model is the “fastest-selling ever,” and at one point Amazon said “the Kindle's sales growth rate has tripled,” but without any quantification.
"Investors in Amazon should be concerned over the lack of visibility the company gives into critical parts of its business, including [the] number of Kindles sold," BGC Partners analyst Colin Gillis wrote in a recent note to clients. He also cited the revenue and the profit made on each device among the areas where Amazon could be more open.
Amazon stock is questionably overvalued. The company's stock is currently trading at an astounding 320 times earnings forecasts for fiscal year 2012 – by contrast, Apple is trading at about 15 times future earnings. In order to justify such a large valuation, investors have to believe that Amazon’s products, including the Kindle, will generate some serious profits down the road. Without the numbers to back that up, analysts say Amazon is a risky bet.
“Amazon provides little detailed operational information on its activities, investments [or] its operating results,” Indigo Securities analyst N. Landell-Mills wrote in a recent client note. “This makes it hard to assess how well Amazon is performing and thus its valuation.”
But Amazon shows no signs of disclosing Kindle sales anytime soon. That puts the Internet giant in stark contrast with Apple, which reveals quarterly unit sales for the iPad and all of its other major products.
Google’s Nexus 7 has been on the market for four months, so no official sales numbers have been offered yet by Google. Google is struggling to keep up with demand for its tablet, and the Nexus 7 is arguably the most popular Android tablet in the market right now. In fact, the device might hit the 8 million sales mark by the end of 2012, a remarkable growth rate. But, Google faces a crowded tablet market and the ever-dominant Apple in its pursuit of tablet supremacy.
The bottom line: Amazon’s new Kindle will most likely be a serious competitor to the iPad. The “opt-out” option will probably be, for the most part, well received by consumers. But, the big picture is not all rosy for Amazon. Google is nipping at Apple's and Amazon’s heels, and until Amazon reconciles product sales with its sky-high valuation and becomes more transparent, investors are most likely not going to bite.
Looking for More Analysis?
If you’re a retail investor, you have to take a look at Amazon.com, the company set on disrupting the entire retail sector. Whether you’re looking to own Amazon itself or own one of the companies it's taking sales from, understanding the company and its prospects is essential. That's why we've created this new premium report on Amazon, which runs through everything investors have to know about the company. Our report also has you covered with a full year of updates as key new hits, so click here now to get started.
EvanBuck 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.
