Monday, June 23, 2008 3:07 PM
Amazon ( NSDQ: AMZN) CEO Jeff Bezos has been famously tight lipped on anything to do with data on the Kindle. Just about the only hard stat ever given out is that of the 125,000 titles the company sells in both physical and electronic forms, the electronic ones account for 6 percent of unit sales. Other than that, it's been all speculation. We're not expecting any hard numbers for a long time, so here's some more speculation: Pacific Crest analyst Steve Weinstein argues that global e-book sales at Amazon could reach $2.5 billion by the year 2012.
To figure this, Weinstein starts with the handiest analogue: iPod and MP3 player sales. He notes that between 2003 and 2008, digital music sales grew from 2 percent of the US market to 33 percent, largely on the back of Apple's ( NSDQ: AAPL) twin offerings. He doesn't expect the Kindle/e-books to track as fast, but he does think the market is off to a strong start already, and that the cycle will pick up steam as the Kindle comes down in price (that's already started) and the ecosystem matures. He also suspects the consumers will be drawn to the instant gratification aspect of Kindle titles, as well as the lower price per book.
What's significant about this prediction is that he expects e-books to start meaningfully benefiting Amazon's bottom line. The big fear is that the company will spend a lot on digital investments without much to show for it down the road. So far, the company's done fine because it's still riding a big wave towards e-commerce, and digital media hasn't yet eaten into its core lines.
Here's his end analysis assuming the $2.5 billion figure proves correct: "Based on an operating margin of 4% to 5% for physical books (comparable to operating margins for brick-and-mortar stores) and 15% to 20% for e-books (comparable to other forms of digital media), we estimate that e-books could add as much as $330 million to operating income, at the midpoints, by 2012. Assuming an 18.5% CAGR for total revenue and all else equal, this would add roughly 100 basis points to Amazon's operating margin."