Trends suggest that the online retail giant, Amazon (NASDAQ:AMZN) had a blockbuster holiday season. The company reported last Wednesday that third-party businesses that sell items on Amazon recorded on average 40% year-over-year unit growth in the U.S.  This comes on the back of the company’s websites experiencing the highest year on year traffic growth versus competitors during the holiday season.  ((Black Friday Retail Traffic Increased 7% in 2012, Experian, November 2012))  Amazon enjoys the highest traffic among all competitors and retained its numero uno position by a substantial margin throughout the month of December.  ((Online retail visits increase 8% year over year week of Dec 9, Experian, December 2012)) 
The growth of traffic to Amazon’s websites was coupled with growth in the traffic from Amazon Kindle devices. Chitika Insights examined smartphone and tablet traffic before and after Christmas Day, analyzing shifts in Web usage volume as well as market share fluctuations and found some striking results.  The share of Amazon Kindle devices grew by three percentage points, mostly at the expense of Apple (NASDAQ:AAPL) iPad. With mobile devices fast becoming the preferred access point to the internet, its important for Amazon that share of traffic from Kindle devices grows. We believe that the growth in traffic from Kindle devices post Christmas could be a prelude to Amazon playing a greater role in the transition from e-commerce to m-commerce. Samsung‘s (PINK:SSNLF) Galaxy Tab and Google‘s (NASDAQ:GOOG) Nexus devices are the other major competitors to Amazon’s Kindle devices.
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Amazon Continues Holiday Sales Dominance
Third party sales account for about 15% of Amazon’s total revenues.  Amazon reported on Wednesday that the third-party businesses that sell items on Amazon recorded on average 40% year-over-year unit growth in the U.S.  The news followed the company flaunting its increased sales even as the the popularity of its Kindle devices seemed to increase manifold. Amazon noted that its Kindle Fire HD’s continued run as the best-selling product on the website. The Kindle Fire, Kindle Paperwhite and Kindle held the next three spots.  We believe that the growth in traffic on Amazon’s websites supports an estimated ~40% growth in same store sales for Amazon.  The growth seems to be spread across business segments and ranges from third-party sales to Kindle hardware sales.
Kindle Gaining Market Share In Traffic From Mobile Devices?
Apple’s iPad brought the tablet product category into prominence and has long been the king of the market. However, the holiday season saw the market share of iPad fall by 7 percentage points after Christmas.  The sharp fall suggests that the Amazon Kindle devices gained popularity as a gift item at the expense of Apple’s iPad and a higher number of Kindle devices would be in use in 2013.
With more Kindle devices in use, we expect an upside to the contribution from mobile sales for Amazon. Citi Analyst Neil Doshi estimates that Amazon is generating $3 billion to $5 billion in annual sales from mobile devices.  Mobile devices are easy to carry around and can translate into higher instances of impulse purchases. Amazon’s business depends on the traffic on its websites and an increased number of Kindle devices should support the sales growth in 2013. We also expect an upside in traffic from Kindles among web traffic from mobile devices.
Key Risk: Kindle Traffic Growth A Holiday Blip?
The results from the aforementioned study and a similar study conducted over the December 8th to December 14th 2012 period suggest that the Amazon Kindle range gained some market share in December vis-a-vis November.   However, the span of these studies covering the holiday season and the primary purpose of the Kindle devices being supporting sales on Amazon could together present a distorted picture. The likelihood of Amazon Kindle’s being used more than iPads during the holiday season is high, and this combined with the company tracking traffic through ads could result in the final results being misleading. If our doubts hold true, the traffic from Kindle devices could return to pre-holiday season levels and the number of Kindle devices sold could be lower than expected.
Alternatively, a growth in the number of Kindle devices in use could be a prelude to more traffic on Amazon’s website and subsequently support sales growth in 2013.
We have a $218 estimate for Amazon which is 15% below the current market price.
- Amazon Marketplace Sellers Enjoy High Growth Holiday Season, Amazon, January 2013 [↩] [↩]
- Online Retail Visits Increase 10% Heading Into The Holiday Weekend, Experian, November 2012 [↩]
- Cyber Monday Retail Traffic Increased 11% in 2012, Experian, November 2012 [↩]
- Online retail visits increase 5% year over year week of Dec 2, Experian, December 2012 [↩]
- Christmas Day 2012 retail visits increase 27% compared to 2011, Experian, December 2012 [↩]
- iPad Tablet Web Share Falls 7.1% Following Christmas Holiday, Chitika, January 2013 [↩] [↩]
- Amazon Third Quarter 10-Q, Amazon Investor Relations, October 2012 [↩]
- Amazon Holiday Sales Show Buyers Enjoy Tablets, Movie Lamp, The Wall Street Journal, December 2012 [↩]
- Holiday 2012: Last week of December SSS Results, Channel Advisor, December 2012 [↩]
- Eight Percent of Amazon’s Sales Are Coming From Mobile, All Things D, January 2013 [↩]
- Tablet Market Update: December 2012, Chitika, December 2012 [↩]
- November Tablet Market Share Update, Chitika, December 2012 [↩]