Amazon (NASDAQ:AMZN) announced that its Kindle Singles are for sales, a new format for the Kindle e-reader to sell shorter and cheaper e-Books. These books roughly between 30 – 90 pages and run somewhere between the size of a magazine article and a full novel, but are lengthy enough to meet the marketing and distribution requirements. [1] We believe this initiative could engage a lot more writers in producing shorter books and assist those who don’t have a publisher to meet marketing and distribution requirements. Amazon competes with eBay (NASDAQ:EBAY), Barnes & Noble (NYSE:BKS), Overstock.com (NASDAQ:OSTK) and Wal-Mart (NYSE:WMT).
Cheaper prices for the shorter format e-Books compared to traditional e-Books could also mean that unit sales of e-Books from the Kindle store will likely go up. This move could help Amazon and benefit its stock. We currently have a 182 price estimate for Amazon.
Potential upside to Amazon’s stock
Amazon primarily competes with Barnes and Noble (NYSE:BKS) and Apple (NASDAQ:AAPL) in the e-Books market. Kindle has an edge over Apple in terms of the availability of e-Books. Amazon is the market leader in the e-Books market and claims its market share to be around 70% to 80%, according to an interview conducted by CNET with Amazon vice president. Amazon’s edge lies in its inventory of e-Books which is currently around 700,000, compared to Apple’s, which is far less at slightly over 100,000. We believe that Amazon’s move to allow shorter e-Books to be made available through its store could further increase the inventory of eBooks currently present and provide customers with a wider variety of options to choose from.
We currently estimate that Amazon will increase its share in the U.S. Online Media market (Books, DVDs and Music) from around 23% in 2011 to around 30% by the end of the Trefis forecast period.
In another article, we discussed how the e-Books segment could eventually become a billion dollar business for Amazon. The introduction of shorter format e-Books could create more upside to our estimate of e-Books revenues. Although these shorter format e-Books are expected to be priced lower than traditional e-Books, we expect revenues to be compensated through higher unit sales.
We believe that it could create greater revenue generating opportunities for Amazon in the long run. As a show of sensitivity, if Amazon captures 35% market share by the end of our forecast, this would add around just under 5% to our price estimate.
You can see the complete $107 Trefis Price estimate for Amazon’s stock here.
