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The Kindle is a hit. Amazon.com (Nasdaq: AMZN ) tells us so.
Amazon's e-books are hot, because the leading online retailer also tells us so.
"For the top 10 best-selling books on Amazon.com, customers are choosing Kindle books over hardcover and paperback books combined at a rate of greater than 2 to 1," Kindle chief Steve Kessel told us in another gushing press release last week. "Kindle books are also outselling print books for the top 25, 100, and 1,000 best-sellers -- it's across the board."
It may be across the board, but is it on the level?
After all, best-sellers tend to be new releases that haven't come out in cheaper paperback form. Why is Amazon lumping it in with the costly hardcovers? Is it so readers of the press release won't arrive at the correct conclusion: Kindle books are selling well because they are being pitted against substantially more expensive physical alternatives?
The top-selling book on Amazon this morning is George W. Bush's Decision Points. It's being sold for $18.90 in hardcover, audio CD, or a soft-cover version in large print. The Kindle e-book is just $9.99.
Even if you don't own an actual Kindle, saving nearly $9 and at least a day or two for fulfillment may be worth it. You can read it on a computer, most leading smartphones, or even Apple's (Nasdaq: AAPL ) iPad.
The Me and My Kindle blog is also blasting the announcement, pointing out that cherry-picking the top 25, 100, and 1,000 hottest sellers stacks the Kindle's performance against an arsenal of costly hardcover editions. The blog leans on a Nielsen Bookscan report, finding that hardcover books represented just 23% of all books sold last year.
Amazon wouldn't be in this pickle if it had come clean with actual metrics. All we get is how the margin-crushing Kindles are outselling their predecessors. Just for once, I'd love to see Amazon spell out exactly how many e-readers and e-books it's selling.
There is no competitive disadvantage in bragging with tangible statistics. I realize that Amazon is battling it out with Barnes & Noble (NYSE: BKS ) , Sony (NYSE: SNE ) , and even Borders (NYSE: BGP ) in the e-reader space, but if you're the best then rest on your laurels.
Apple does this all of the time. We know when it sells another million iPads or when another billion iTunes downloads take place. Every quarterly report tells us exactly how many iPhones it sells -- and the class act of Cupertino doesn't care if Research In Motion (Nasdaq: RIMM ) or Google (Nasdaq: GOOG ) hears it.
Reading Amazon's press releases on Kindle's greatness is like having a discussion with a kindergartner or a politician. They all tell you what they think you want to hear in glowing superlatives, but lack the details you really need to know before drawing your own conclusion.
Is Amazon lying to you? No -- but it sure appears to be trying to mislead you.
Come on, Amazon. Show us the numbers!
Why do you think Amazon has refrained from divulging hard numbers on actual Kindle and Kindle book sales? Share your thoughts in the comments box below.
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Report this Comment On November 05, 2010, at 2:32 PM, goalie37 wrote:
With a P/E around 70, I really don't care how good business is. The multiple will contract over time regardless of profits.
Report this Comment On November 05, 2010, at 3:10 PM, SkippyJohnJones wrote:
"like having a discussion with a kindergartner or a politician." This is the best line I've read in a long time, and it perfectly encapsulates your point in one clean thought. Well written.
Report this Comment On November 05, 2010, at 3:57 PM, mikecart1 wrote:
If AMZN isn't lying, then no one in the history of the world ever lied. I find it cheaper to buy used books for under $1 and still sell them back than to buy a digital version for $9.99 and never be able to get that money back.
AMZN will fall. It isn't about 'if', but 'when'.
Report this Comment On November 06, 2010, at 12:48 AM, EVLTRND wrote:
I wouln't normally take the time to comment on an article but....well...good job Rick(?).
I always appreciate a little calling out onto the mat.
C'mon AMZN! bawk, bawk, bawk bawk bawk! lil' pretty princess, show me what ya got?
Report this Comment On November 06, 2010, at 4:12 AM, EditorJim wrote:
This goes way beyond their reports on e-books and e-readers, but into the basic metrics of all their sales. The quarterly reports always lump multimedia into one gigantic figure, but knowing where they actually stand regarding books, music, and movies, would help investors know what Amazon is up against in regard to specific competitors, and categories that each have very different challenges.
Report this Comment On November 07, 2010, at 6:19 PM, dgresl00 wrote:
First, I will disclose upfront that I am short Amazon. I continue to be amazed at the valuation. Almost every person posting on the blogs is negative, they have the worst disclosure for a company their size of almost any public company (as this article states), they continue to over pay for acquisitions, their operating margins are a whopping 4.5%, they are under attack from the states for sales tax which will cripple their single biggest advantage over the Wal-Marts and Targets of the world, but the stock does nothing but go up. The most recent news is that they will pay $540 million for Quidsi (diapers.com). The only disclosure is that the business has $300 million in revenue which would mean that even if their margins are double Amazon (doubtful) that Amazon is paying 25+ times cash flow. Despite this huge reach, it’s actually a smart acquisition for the bulls on this stock since Amazon trades at over 50x cash flow.
Definitions of cash flow can vary but my view is the simplest and best measure is EBIT or Operating Income. For the trailing 12 months ended 9-30-10, Amazon had roughly $1.4B in EBIT. The Enterprise Value (EV) is north of $70B so the multiple is over 50x. Average growth in EBIT over the last 3 years is approximately 30%, however the growth was 7% comparing 3Q 2009 to 3Q 2010 and Amazon’s disclosure (if you can call it that) is that the fourth quarter operating income will be in a range of $360 to $560 million or a decline of 24% to an increase of 18% when compared to 2009. Even if they achieve the top end of their range, the growth for the year will still be around 30% (but only 13% for the last two quarters). If they successfully grow EBIT 30% over the next four years, they would still trade at nearly 20x cash flow at today’s valuation.
By comparison I looked at Wal-Mart, Target, and Costco. Three seasoned, well-respected retailers that are growing but only in the single digits. Wal-Mart has nearly $25B in EBIT and an EV of $236B or roughly 9.5x. Costco $2.1B in EBIT and an EV of $24.7B or 11.8x. Target $5.0B in EBIT and an EV of $54B or 10.8x. All three of these entities have very successful internet arms that can compete with Amazon except for a lack of sales tax. Just to show that I am not afraid of tech, growth stocks, I am a huge fan of Apple so I looked at the valuation there. Apple has trailing 12 month EBIT of $18.4B and an EV of $240B or around 13x. However, Apple’s EBIT growth has averaged 60% over the last three years. Even if they only grow at 30% next year, their EBIT multiple will fall into the single digits by the end of 2011. By any conceivable measure, Amazon is hugely over valued. It is a good company in a highly competitive space that will surely succeed in the long run but the stock should be less than half of where it trades today. I am also a firm believer in efficient markets and there are clearly many buyers out there. I welcome those bulls to provide their view of how this company will justify this valuation via performace in the future.
Report this Comment On November 09, 2010, at 6:56 PM, pogicraft wrote:
Only when a company faces bankruptcy does price closely reflect value. Amazon is beating Walmart Target and the like simply because it is the number one undisputed online retailer. If you want to order a book online, there's no one else you think of. If you're looking for a giant general marketplace, there's no one else you think of. Heck, I even bought a couple dozen plain Haines t-shirts from them.
Walmart and Target etc don't rise as fast because neither of them are significantly better than the others in terms of brand loyalty, value and recognition. If Walmart tanks, you can bet Target jumps at least 15% that day. (assuming it was something specific to Walmart)
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