Android tablets seem to be catching up to Apple‘s (NASDAQ:AAPL) iPad with Amazon (NASDAQ:AMZN) and Samsung (PINK:SSNLF) leading from the front.  We expect Amazon to make the most of this surge in Android devices’ popularity through its Kindle Fire device range. The devices will help Amazon capture a major share of interest traffic as the traffic’s source shifts from desktop PCs to mobile devices such as tablets and smartphones. The company had launched a revamped range of Kindle devices with features closely matching those of tablet device pioneer Apple’s iPad in September 2012.
The revamped device range led a sharp increase in Amazon’s market-share in the tablet market during the holiday season of 2012.  Kindle Fire family of tablets registered an increase of nearly 20% from Kindle Fire’s 3.57% share observed in November 2012. Data analysis firm, Localytics, estimates that about 60% of all the android tablets are based in the U.S. and over half of those are Kindle Fires or Kindle Fire HDs.  The share of Kindle devices in the Android tablet range supports our belief that Amazon’s future revenue growth will be driven by the adoption of Kindle devices.
What Does This Mean For Amazon’s Retail Business?
An estimated 200 million tablets have been shipped worldwide since 2009 and another 1 billion are predicted to ship over the next five years. The rapid growth is expected to be supported by an increase in the spending through tablets. Market intelligence firm ABI Research, estimates that in the U.S, 22% of users spend $50 or more per month and 9% spend $100 or more; much higher than spending levels observed by smartphone owners.  The growing popularity of Amazon’s Kindle Fire range means that a major share of this spending will be re-directed to Amazon’s online storefronts. Since the Kindle devices are optimized to run Amazon’s services, we expect the growing popularity of Kindle devices to drive greater adoption of Amazon’s services. We expect the content business comprising of eBooks, movie/music streaming, etc. to be the biggest gainers from the trend.
Great Potential For International Expansion
Research from Localytics points out that the Kindle Fire has practically no presence outside America.  About 89% of Amazon’s family of tablets live in America with most of the rest in Great Britain. After those two, no other country has even one percent of worldwide Kindle Fires. The expansion of Amazon’s retail business worldwide coupled with the launch of the Kindle Fire devices could be the growth opportunity that helps sustain Amazon’s current revenue growth rate. The company is already in the process of expanding its presence in Brazil and China where the Kindle store was launched recently.   We expect the company to gradually launch the content business and the Kindle Fire device range in the European and Asian markets over the coming years.
We have a $218 estimate for Amazon which is 20% below the current market price.
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- Android Tablets Gain Momentum in the Third Quarter, Expectations Remain High for the Holiday Quarter, IDC, November 2012 [↩]
- Tablet Market Update: December 2012, Chitika Insights, December 2012 [↩]
- Kindle Fire Drives US Android Tablet Dominance, Localytics, January 2013 [↩] [↩]
- U.S. Consumer Tablet On-device Spending Soars with 22% of Users Spending More Than $50 per Month, ABI Reasearch, January 2013 [↩]
- Amazon Launches Brazil Kindle Store, Business Wire, December 2012 [↩]
- Amazon launches Kindle store in China, could pave way for Kindle, Reuters, December 2012 [↩]