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Amazon Turns Up the Heat on Competitors With Kindle Fire

Posted on Tuesday, May 1st 2012

Amazon (NASDAQ: AMZN) has been focused on expanding its digital footprint. Finally, this quarter, the company’s efforts have borne results. During the previous quarter, digital products accounted for 9 of the top 10 products sold on Digital sales were led by their recently launched Kindle Fire which has stormed through the Android-based tablet market. Increased digital sales helped Amazon’s revenues and earnings grow ahead of market estimates and sent their stock soaring.

Amazon’s Financials
Q1 revenues grew 34% over the year to $13.18 billion, ahead of the Street’s target of $12.9 billion. EPS of $0.28 was significantly lower than previous year’s $0.44, but managed to surpass market expectations of $0.07 per share.

Amazon’s North American sales grew 36% over the year to $7 billion and international sales grew 31% to $6 billion. Worldwide media sales recorded an impressive 20% growth to $5 billion while electronic goods sales grew 43% over the year to $8 billion, driven by the strong sales of Kindle Fire. Amazon’s digital sales are dominated by Kindle Edition digital print. According to eDataSource, Kindle book sales account for 77% of their revenues over the last six months. Other digital content includes video on demand accounts, music and apps, which brought in 8%, 12% and 2% respectively of the last six months’ revenues. However, revenues from the digital product mix shifted recently, and they ended the last quarter with video-on-demand accounts growing to 10% of sales.

For the current quarter, Amazon projected revenues of $11.9-$13.3 billion, ahead of the Street’s target of $12.8 billion.

Kindle Fire
Analysts were counting on Amazon’s new tablet, the Kindle Fire, to give Apple’s iPad a run for its money. According to Forrester, iPads now account for 73% of the overall tablet market. Surely, the new Fire hasn’t hurt the iPads too much. However, Amazon has managed to compete very successfully with other Android-based tablet devices. Launched in November 2011, Kindle Fire now accounts for more than half of the Android-based tablet market share in the U.S. According to comScore, Kindle Fire saw its market share double over the last few months. In December, the device accounted for 29.4% of the Android tablet market. By February, their market share had soared to 54.4%. And they are ahead by quite a margin. Samsung’s Galaxy Tab holds the second place in the Android tablet market with 15.4% market share followed by Motorola Xoom’s 7%.

Amazon Expands Verticals
Amazon continued to expand its target market reach by launching AmazonSupply. AmazonSupply is aimed at meeting the office needs of commercial enterprises. The service has a list of over 500,000 items on sale which range from cleaning supplies to office supplies such as printer paper, office desks and chairs and also some laboratory equipment. Offices will be able to place orders through and also through their phones. Amazon claims that the products are priced competitively and with orders of more than $50, customers get free shipping . Amazon is hoping to capture the B2B segment of the market through this offering and will begin to compete with the likes of Office Depot and Staples. This comes after vertical-specific acquisitions such as and Zappos.

Amazon’s Kiva Acquisition
Amazon recently announced plans to acquire Kiva Systems, which manufactures robots that help in warehouses. This is Amazon’s second big acquisition since acquiring Zappos three years ago. At 9.5% of revenues, Amazon’s warehouses account for a big share of operating expenses. Massachusetts-based Kiva makes robots that can slide under product shelves and bins and transport them for packaging. The interconnected hardware of autonomous mobile robots and a complete control software package helps streamline the process of picking, packing and shipping products for delivery. The $775 million acquisition will help Amazon deploy Kiva’s robotic technology in its own warehouses to help control fulfillment center related costs.

Amazon’s stock is trading at $226.85 with a market capitalization of $103.23 billion. It touched a lifetime high of $246.71 in October 2011.

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rudulah Tuesday, May 1, 2012 at 6:38 PM PT