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Summing Up the Last Week for Amazon: Phases I, II, and III of the Kindle Revolution Are Over, and Amazon Has Won All Three

By Stephen Windwalker, Editor of Kindle Nation Daily

Every few months we get a particularly strong dose of doom and gloom from a large number of the market and media pundits who follow Amazon and the Kindle, and another negative wave seems to have been cresting in the past several days.

It may have begun with Amazon’s corporate earnings release last Thursday, when the company announced first quarter earnings of $394 million ($0.66 per share, equalling consensus expectations) on revenues of $7.13 billion that outstripped street expectations as well as Amazon’s own guidance. In that earnings report and the subsequent conference call, Amazon offered what some have called “soft” guidance concerning its own projections for the second quarter: Amazon is estimating earnings of $220 million to $320 million for the second quarter, on revenues of $6.1 to $6.7 billion. That kind of earnings growth of only 39% to 102% over the year-ago quarter, could certainly explain the doom and gloom, yes?

Well, not really. The amusing thing is that the movement of Amazon’s stock over the last few trading days is pretty much a mirror of what often happens to the company’s share price around the time of its quarterly earnings reports:

  • As I posted on Thursday morning (April 22, 2010), Amazon opened that day trading around $147, within a whisker of its all-time high. 
  • Over the course of that day’s trading session, high expectations for the future of Amazon and the Kindle caused the AMZN share price to blow through its all-time high as well as the “psychological barrier” and “short-covering stop loss price” of $150. It closed that day, seconds before the release of the earnings report, at a new all-time high of $150.09.
  • In typical Wall Street “buy the rumor, sell the news” fashion, after-hours and Friday traders responded to the earnings report by selling off shares to lock in profits from the fact that the company’s stock has roughly doubled over the past year. Although Friday’s closing price was down from Thursday’s closing price, the fact is that during the Friday daytime session the stock actually made back about half of what it had lost in the lower-volume after-ours session Thursday evening.

But Wall Street analysts take the long view, right? They take a collective memory that extends back about five hours and apply it to the “news” of the last 15 minutes, and then try to construct a narrative that explains things.

Explain things indeed.

So what we get over the weekend is a spate of items like these:

My, my.

Let’s take that last one first. It is stunning news that the Nook outsold the Kindle in March, after a November-December Nook roll-out that was the second coming of the Ford Edsel. Only one problem: it didn’t happen. The report on which these Nook-beats-Kindle stories are based is a report from PVI, the Taiwan-based company that provides e-ink displays for both devices. PVI said that it had shipped more manufacturing units of the Nook than of the Kindle to the U.S. in March. Well, that would be necessary if Barnes & Noble were going to finally begin providing ample Nook inventory in the thousands of retail outlets where it has the capacity to sell the Nook. Given the fact that Barnes & Noble has just completed what sounds like a promising Nook feature upgrade, that inventory boost is significant and, not to be a cynic here, but the company could even have primed the numbers and the media pump a bit with the PVI story in order to cash in on some of that Kindle-Killer Koverage. It won’t suprise me at all if there are more ebooks sold by the Barnes & Noble eReader store and app this year than by Apple’s iBooks store (you can’t sell what you don’t stock), or if Amazon moves quickly to make the Kindle ePub-compatible so that it can read ebooks sold by B&N and others. But let’s not confuse inventory with sales. Sales put cash in a company’s pockets, inventory draws cash down.

Then there are the share prices. Even the mainstream coverage of Amazon’s earnings report and subsequent trading was all about how the markets were underwhelmed by Amazon’s performance, causing a huge selloff. It’s just that none of them mentioned that the stock was actually up for the week, and certainly we can’t expect any of them to still be sticking around today to explain why the stock has climbed back above $147 to exactly where it was when I posted on Thursday morning.

Perhaps that share price will get to $90 by going to $175 first?

One thing that is true about Amazon is that, while it has been known to hype a product or two, it tends to play its hand in very understated ways with regard to its quarterly need to provide guidance about future earnings, so the result is often that the company either has to revise its guidance upward or to simply release numbers, at the appropriate time, that blow the doors off market expectations. With serious new competition and some difficult retail pricing issues to resolve, it is perfectly plausible for Amazon to project second-quarter earnings that could be only 60 to 80 percent of its first-quarter earnings.

But when all is said and done, don’t be surprised if Amazon finds it necessary to revise those estimates upward sometime in mid-June, or announce in late July that it drew down earnings by significant amounts to make some serious capital investments in feverish expansion of its already impressive device ubiquity,  in the worldwide expansion of Kindle Nation, er, the population of those who read Kindle content, and in a growing and language-diverse catalog that may, by the end of this year, put even Google’s to shame.

I know of smart people who listened to Amazon’s earnings conference call and concluded that Amazon’s executives did not say anything new or interesting about the Kindle. I suppose you could see it that way, but I’ve been listening to Amazon conference calls for a decade and I heard some very telling statements and shifts of emphasis that suggested, to me, a company that is very confident about several things:

  • There are major advances coming soon in explosive growth of the Kindle catalog, including a wider and wider portal for authors to march through either directly or under the auspices of companies like Open Road and RosettaBooks.
  • The stunning success of the iPad, iPhone, and iPod Touch, combined with the poverty of the iBooks catalog, will drive continued explosive growth in the number of people who navigate to Amazon’s website to buy Kindle books, other books, and just about every other street-legal product imaginable.
  • Phases I, II, and III of the Kindle Revolution are over, and Amazon and the Kindle have won each phase. The goal of Phase I was to move ebook reading from an off-the-radar activity to something that a significant percentage of the world population wants to do. Check. The goals of Phase II were to make the Kindle store and reading environment dominant so as to position Amazon as a kind of market maker in all ebook matters, and Amazon has succeeded beyond its own wildest dreams with more than a 60% share of ebook device sales and a market share of ebook content that reached somewhere between 80 and 95 percent by late last year.  Check. The goals of Phase III were to achieve sufficient success and buzz to lure other bigfoot players to the tablet and ebook reader device market — even those who might have opined not so long ago that “nobody reads any more” — so that they would take up some of Amazon’s burden with respect to device manufacturing, inventory, and sales, and leave Amazon, even while it continues to ship a few million Kindle devices each year, to focus on making sure that all of its competitors’ devices would be Kindle-compatible to allow Amazon to market its world-leading ebook catalog to, in time, everyone in the world. Check.

What’s next? Let me go back to my tulip texts, and I’ll report back here as soon as I have something.

Amazon Poised for Earnings Report, and Why It Matters to Kindle Customers

By Stephen Windwalker

Any company’s profitability and share-price performance can be significant in a variety of ways for people who are invested either in those shares, or in the company’s most important product, or both. For those of us in Kindle Nation, Amazon’s corporate viability is especially important because the long-term value of our ownership of Kindle hardware and Kindle content is based in part on assumptions that the company will continue to support the hardware, the Kindle store and apps, and the “cloud” in which our archived content is maintained.

So, it’s probably worth mentioning here that Amazon will report its quarterly earnings for the first quarter of 2010 as the stock markets close at around 4 p.m. ET today, with a webcast conference call to follow about an hour later. Here are links for each event:

In early trading at the opening of the markets today, Amazon’s shares are offered at just over $147, double their 52-week low and within a whisker of their all-time high.

In the first quarter of 2009 Amazon’s earnings were 41 cents a share on revenue of $4.89 billion, and the company’s recent guidance for the quarter to be reported today called for revenue of $6.45 to $7 billion. “Market consensus” calls for first-quarter 2010 earnings of 51 to 76 cents per share on revenue of $6.56 to $7 billion.

Disclosure: My household has a minor long position in AMZN stock, valued currently at about $235 million less than the value, at the time, of Amazon shares that Amazon CEO Jeff Bezos sold in mid-February.

Of 90% Market Shares, $375 Share Prices, and 446 Million eBook Readers Shipped: Ho-Hum, But the Sky May Not Be the Limit for the Kindle

These are exciting times for those of us who pay close attention to what we read, how we read, and where we get what we read. That’s a group that includes authors, publishers, booksellers, investors, librarians, and, most importantly, readers. There are many ways in which “exciting” plays out, including “frightening,” “wonderful,” and “inscrutable,” depending on one’s perspective.

In the corporate offices at Amazon, I suspect that there are many days that are both wonderful and mildly frightening, but the company’s leadership is possessed of very strong, almost messianic entrepreneurial spirit in which opportunities, risks and challenges that might terrify and paralyze others are embraced and attacked with zest and a kind of cowboy confidence. While others may be paralyzed, this coming second fortnight of January is bound to be an incredibly exciting and energizing time for Amazon Jeff Bezos and his minions.

For starters, they and they alone know just how great a holiday season 2009 provided for the Kindle. It’s important to remember that it was the first ever real holiday season for the Kindle, since Kindles were out of stock throughout November and December 2007 and 2008. But with the Kindle Revolution reaching a first-phase tipping point and neither Apple nor Barnes & Noble able to get its act together to compete effectively for 2009 market share, Amazon easily surpassed the 60 percent market share widely projected for the Kindle among ebook readers in 2009.

Yet even more important than Kindle units sales are the numbers for Amazon’s overall share of ebook content sales, and here the relevant factors involve not only the number of Kindles extant but the number of other devices running a Kindle App and the dominant convenience, pricing, selection and channels of access to the Kindle Store compared with any of the also-rans. Frankly, there’s no real competition there, and any talk of a real ebook rivalry between Amazon and Apple, Google, Barnes & Noble or any other ebook content seller brings to mind another famous rivalry, that which pitted the hammer against the nail. A recent report by Rory Maher at TBI Research made reference to, and analyzed, some publishing industry sources who believe “Amazon is currently selling upwards of 90% of all e-books sold.”

With this kind of market share, or anything close to it, it is no wonder that publishers are exhibiting high levels of anxiety and ill-considered, scattershot tactics in an effort to keep what they consider the tail from wagging the dog. But Amazon is the Big Dog here, and those of us — whether authors, publishers, pundits, investors, manufacturers, accessory providers, or others — who are investing large amounts of time, energy, verbiage and money banking on the ascendancy of alternative ebook hardware, platforms, selling channels or publishing standards are, despite the best of intentions in many cases, out of touch with what’s really going on in the book business.

While some may be surprised by the aforementioned 90% figure, I’ve seen absolutely nothing in the past 26 months of the Kindle’s life that suggests otherwise, and there is little reason to believe that this kind of Kindle market share for content sales will decline radically any time soon. I’ve been on record all along the way with my calculations and belief that Amazon shipped a half a million Kindles before it went out of stock on November 1, 2008, and that it reached a million Kindles shipped by the Spring of 2009 and easily surpassed 2 million by the end of 2009. Other observers couldn’t swallow these figures early on, but they have gradually come on board and there are now widespread projections that the installed base of Kindles and other ebook readers will reach 9 million in 2010, 28 million in 2015, and 446 million — with a unit price under $50 — in 2020.


Authors and publishers whose books or blogs are brisk sellers anyway in the Kindle Store could not help but notice that unit sales jumped by astonishing multiples beginning on the morning of December 25, 2009, and the time may yet come when Kindle content sales are such a central element in overall industry figures that the Amazon might be forced to release the real numbers or to allow authors and publishers to do so as a matter of freedom of speech and enterprise.

After the markets close on Thursday, January 28, Amazon will announce its earnings for the four quarter of 2009, and consequently for the full fiscal year as well. Company executives will hold a conference call with investor analysts, as they always do, at 5 p.m. that day, and it will be webcast live at www.amazon.com/ir. While Amazon has always been circumspect about the actual numbers with regard to sales of Kindle units and Kindle books and other Kindle content, it is clear that the elephant in the room, that numerical beast of which they must never speak, is getting bigger and bigger.

Driven largely by investors’ anticipation that the Kindle will continue to provide Amazon with an increasing ability to dominate the book business, Amazon’s share price tripled from under $48 a little less than a year ago to an all-time high over $145 in late November 2009. It has retrenched to the 120s twice since, but a few days ago Cowen & Co. analysts Jim Friedland and Kevin Kopelman posted a detailed analysis on the Barron’s blog stating their belief that Amazon shares are significantly valued based on a long-term discounted cash-flow (DCF) analysis and projected a future price of $165 to $375 for Amazon stock.

We’ll see, but there are plenty of indications that the Kindle Revolution is well under way, and that the future looks very bright for Amazon and especially for the Kindle. The biggest challenges to the supremacy of Amazon and the Kindle may come, in time, not from competitors but from regulators and litigants whose challenges could be based on a variety of issues if Amazon ultimately finds itself able to influence the book business in every way from top to bottom. And ironically, whether as a result of its own corporate citizenship or of its savvy anticipation of such challenges, it may be these considerations that lead Amazon to opening up a Big Kindle Tent to other ebook manufacturers’ hardware, other publishing standards, and other sellers.

(Thanks to Andrys Basten of A Kindle World for helping me to get the right headline on this post!)