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.