Can Amazon Kindle Fire Up to Apple?
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Much focus has been on Apple (NASDAQ: AAPL) over the past few weeks, culminating in the company’s successful patent lawsuit against Samsung, which it charged infringed several of its patents. In all the hoopla over the strides that have recently been made by Apple, less attention has been focused on another tech giant and competitor to Apple. That giant is Amazon.com (NASDAQ: AMZN), whose successful entry into the tablet market contributed to to it reaching its all time trading high last week.
On Friday, Amazon exceeded its all time high of $246.71, hitting $246.87. Over the course of Monday’s trading, however, Amazon pulled back, and closed at $243.92.
Amazon has made some considerable gains over the years, including the introduction of the 7-inch Kindle Fire. The tablet’s success since being launched last fall has helped to establish Amazon as a serious competitor in the tablet space. Its $199 price point and the popularity of its size (smaller than the what-had-been-the-norm 10-inch tablet) helped to spur other manufacturers to develop tablets of the same size. This includes Google (NASDAQ: GOOG), which has introduced the Nexus 7. On the horizon is a 7-inch tablet from Microsoft called Surface. And last, but not least, is the possible release of a mini-iPad by Apple.
Determined to stay in the fray of the growing tablet market, Amazon announced last week that it had some important news to share and would do so during a major announcement on Sept. 6. I believe, like others following the company and its stock, that the announcement will be the arrival of a new and improved Kindle Fire. This guess was part of the reason the company’s stock ticked higher last week.
While the Kindle Fire initially gave other tablet manufacturers a run for their money after being introduced, the numbers tapered off. The reason, as usual, mainly stemmed from the dominance of Apple’s iPad, which was introduced in the spring, and Google’s Android-powered tablets.
In early August, IDC Corporate released a report detailing the number of tablets shipped during the second quarter. Amazon ranked third behind number one Apple and number two Samsung.
Compared to the second quarter of 2011, Apple, Samsung and ASUS experienced phenomenal growth. There are no comparison numbers for Amazon because it did not introduce the Kindle Fire until the fourth quarter of 2011.
Amazon captured 5% of the market. Apple captured 78.2% of it, while Samsung took 9.6% of it. Apple, which introduced the new iPad in the spring, shipped 17 million units. Samsung shipped 2.4 million and Amazon shipped 1.2 million. ASUS, ranked fourth, shipping 855,000 units.
The growth rates for Apple, Samsung and ASUS were extremely strong for the second quarter of this year compared to the second quarter of 2011. They were 84.3% for Apple; 117.3% for Samsung and 115.5% for ASUS.
So it is very clear that Amazon has its work cut out for it if it wants to carve out more market share in this highly competitive market. Amazon’s failure to ship its Kindle Fire to overseas’ markets has hindered its ability to capture more market share. And this is one of the bones I have to pick with the tech giant.
Concerns have also been raised about the company’s dwindling earnings per share. They have dropped from $1.82 to about $0.62 over the past five quarters, which shows that the company’s growth rate has slowed.
Although, second quarter sales for this year were up 29% to $12.83 billion, operating income was down sharply. Operating income totaled $107 million for this year's second quarter, compared to $201 million for the second quarter of 2011.
Amazon’s margins will be pressured by one of its most successful services – Amazon Prime. The Internet retailer now offers same-day shipping through this service, which is very expensive. The service is $79 a year and has been this price since being rolled out about seven years ago. Amazon is likely considering raising this amount in light of the expensive same-day shipping costs. The key will be to increase the price to a level that doesn’t offend, and run off, customers.
There is no question that Amazon has strengths that make it an extremely attractive investment. Its cash flow, revenue growth, and the steady climb of its stock value are indicators of its strength. Whatever it plans to announce on Sept. 6 will likely be another positive step in preserving shareholder value. If it is indeed the release of a new and improved Kindle Fire, I hope the company takes it global. Apple, Samsung and ASUS have shown they are powerful players in the tablet space, placing considerable pressure on Amazon if it is to continue to increase its stock value.
TwillyD 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.