Amazon Q4 Preview: Can the Fire Keep Burning in 2012?

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AMZN: Amazon logo
AMZN
Amazon

After beating holiday sales records with the Kindle Fire, Amazon (NASDAQ:AMZN) is undoubtedly expected to rake in hefty revenues in Q4 2011, driven by hardware sales and media consumption on its Kindle devices. However, the company’s high cost structure continues to be a worrying factor. By our estimates, the company’s adjusted EBITDA margin is expected to drop to below 2.5% for the year 2011, and Amazon is be hoping that heavy e-content consumption on the Kindle Fire can turn this around.

See our full analysis for Amazon’s stock here


2012 Goal: Build More Kindle Dependence

The latest figures released by Amazon claimed that it lent over 295,000 e-books in December 2011 through its Kindle Direct Publishing program. [1] In 2012 we could see the same upside on e-content supported by Kindle Fire, including movies, TV shows and apps, and Amazon has invested heavily in content partnerships in 2011 to achieve this. However, selling the Kindle Fire at a loss would continue to build up costs for the company and test investors’ patience. It would not be a surprise if Amazon puts the brakes on marketing expenses this year and adopts a wait-and-watch strategy to see whether its Kindle platform is getting the desired media consumption.

We currently have a price estimate of $233 for Amazon’s stock, which is currently around 30% above the current market price.

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Notes:
  1. Kindle Owners Borrowing More Than 295,000 Books per Month, ZDNet, 12th Jan 2012 []