Amazon's Kindle Fire could be making the company some $136 per device in additional revenue thanks to consumer purchases of ebooks, applications and streaming video, according to RBC Capital.
Amazon's Kindle Fire could be making
the e-commerce giant $136 per device in content sales, according to estimates
from RBC Capital.
When financial analysts in September
learned Amazon (NASDAQ:AMZN) would sell its Kindle Fire tablet for $199.99, the
assumption was that there was no way the e-commerce giant would make money on
the devices itself after hardware and manufacturing costs were factored in.
The consensus was Amazon would make its
money from delivering content, such as books, movies, music and applications,
over the 7-inch, custom Google (NASDAQ:GOOG) Android tablet. IHS iSuppli
confirmed the wash on hardware and manufacturing costs when it reported
the Kindle Fire cost $201.70 to build.
That meant Amazon was losing nearly $2 per device, a model that is anathema to Apple (NASDAQ:AAPL), which keeps the
bulk of the money it makes from selling its iPads.
Amazon won't divulge sales of content
served over its Kindle Fire slates, which analysts believe have sold millions
to date. However, RBC Capital analyst Ross Sandler polled 216 Kindle Fire
owners and concluded that Kindle Fire tablets are making Amazon more money than
was originally expected by analysts.
"Our assumption is that Amazon
could sell 3 to 4 million Kindle Fire units in Q4, and that those units are
accretive to company-average operating margin within the first six months of
ownership,"
Sandler wrote in a research note Jan. 19 (via AllThingsDigital). "Our
analysis assigns a cumulative lifetime operating income per unit of $136, with
a cumulative operating margin of over 20 percent."
How are consumers spending their money
at Amazon via the Kindle Fire?
While consumers are snapping up their
share of streamed video content and product purchases, Sandler's survey found
roughly 80 percent of Fire owners have purchased ebooks, with 58 percent of
respondents owning up to buying more than three ebooks within the first two
months of owning the tablet.
Averaged out, that's five ebooks per
quarter, which nets Amazon $15 per Fire owner per quarter, assuming an average
selling price of $10 for ebooks.
Paid apps mostly make up the rest of
the $136 per device content spending, with 41 percent of Fire owners saying
they bought at least three apps, if not more. This will put another $9 per Fire
owner per quarter into Amazon's coffers.
Amazon is expected to announce fourth-quarter
earnings Jan. 31. Analysts such as Piper Jaffray's Gene Munster expect the company
to report 44 percent U.S. revenue growth, year over year.
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