Would a Kindle Phone be as Helpful to Amazon as the Fire?

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After the runaway success of Amazon’s (NASDAQ:AMZN) Kindle Fire tablet, rumors are that there could be a Kindle Phone on the cards for late 2012. [1] The question is whether a Kindle Phone could garner the same amount of e-content and e-commerce demand to offset the hardware loss. Amazon competes with tech giants like Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) in the mobile device space.

See our full analysis for Amazon’s stock here

Would a Phone be an Effective Media Platform?

The main reason for the success of the Kindle Fire is the potential gains Amazon can see in its apps and e-content business. This is precisely why the company has heavily invested in licensing agreements to boost its online video offerings even further.

However, while a 7-inch tablet is a great visual platform for watching movies and reading books, a smartphone might not exactly be the preferred choice for the same. Keeping this in mind, the Kindle Fire model would not necessarily be applicable to a corresponding phone, as the e-content sales might not totally offset the hardware loss.

Consequently, Amazon would need to formulate aggressive e-commerce promotions for the Kindle phone. Given that mobile shopping in continuously on the rise, merchandise sales should be the biggest value addition to the device. This will of course, come at a cost, and with Amazon’s margins already squeezed, the company might consider charging a price premium for the phone itself.

We have a revised price estimate of $233 for Amazon’s stock, which is currently around 24% above the current market price.

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Notes:
  1. Amazon Kindle Phone On Tap, Says Citigroup []