Will Amazon Ride Its Fire to Glory?

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It seems as if the Fire that (Nasdaq: AMZN  ) kindled has lit up. I had expressed my reservations about the product and its acceptability, but the initial response to Amazon's low-budget tablet has been overwhelming, so much so that the company is accelerating production in the wake of supersonic demand. Now, it makes sense to dig deeper into the prospects of this product and how Amazon could turn out to be a winner in the long run.

Breaking even
An important factor to consider while launching a new product is whether it has the ability to recover costs. Currently, Amazon is almost breaking even by producing the tablet at $201.7 and selling it at a cheap $199. As the company pumps up production, the cost should come down further and generate profits.

And remember, this doesn't take into account the revenue each tablet will generate once it reaches the hands of customers through online sales, which are supposed to drive the success of the Fire. So all in all, the future looks quite rosy for the Fire as Amazon gears up to cash in on the holiday season.

The Fire may be lacking in versatility compared to Apple's (Nasdaq: AAPL  ) iPad or Google's (Nasdaq: GOOG  ) Android-enabled Motorola (NYSE: MMI  ) Xoom, but this space is not where it's meant to be. It is meant to rule the roost in the low-budget tablet segment, where its prime rival is Barnes & Noble's (NYSE: BKS  ) Nook tablet, which is priced at $249 and offers double the memory of the Fire and a faster processor.

However, considering the wide array of content available on the Fire compared to the Nook, Amazon could well see out the challenge posed by Barnes & Noble. And if you were concerned about the memory and processor speeds, then you'd likely opt for a Samsung tablet or an iPad instead of a low-budget gadget.

The macro factors
Economic uncertainty could well turn out to be a blessing in disguise for Amazon. Considering how tablets and mobile computing are fast becoming a part of our daily lives, the Fire, with its attractive price tag, is easy on the pocket. Amazon's expectation of selling 5 million units of the tablet in the ongoing quarter bears testimony to the fact that it has been a hit among customers.

The Foolish bottom line
Maybe I was a little too apprehensive in my earlier dissection of the tablet, but the package the Fire brings along could take it a long way. Amazon's margins may suffer a bit in the short run as it looks to turn the tablet completely profitable, but its prospects are certainly looking bright going ahead. Once the Fire starts making money, it will hopefully bring the oomph factor into the company's margins as well.

Add Amazon to your Watchlist, and keep track of how it builds on the strength of its Fire.

Fool contributor Harsh Chauhan owns none of the stocks mentioned in the article. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services have recommended buying shares of, Google, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. 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.

Read/Post Comments (2) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 29, 2011, at 12:05 PM, foolindeed1 wrote:

    KIndle Fire will only light fire under Amazon earnings for the next two quarters at least. Also, Amazon's own web site has hundreds of reviews of Kindle Fire's new owners that gave it 1 or 2 star reviews because of its choppy/laggy experience with this underpowered device. Also is it confirmed that a lot of Fire units have faulty Wi-Fi thus users have issues connecting to Internet. All pro reviewers on the web noted that Kindle Fire's performance is significantly worse than Nook Tablet from Barnes & Noble that is only $50 more.  Also, Nook Simple Touch eReader (for $99 without ads) has twice the battery life and faster page turns than Kindle Touch ($139 without ads.)

  • Report this Comment On November 29, 2011, at 6:02 PM, kthup wrote:

    Gosh, lot's of backtracking in this one. Sounds like this fool was reminded by his foolish boss that Amazon's signing his checks.

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