Amazon (Nasdaq:AMZN) unveiled its $199 new tablet computer, the Kindle Fire, as the latest entry in the tablet wars. The Fire features a seven inch screen and a new web browser, as well as free remote content backup on Amazon's servers. The tablet will stream TV, movies and have access to Amazon's app store.

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Where There's Smoke
Amazon had been expected to do something in the tablet area, so the natural assumption is that the Fire is a challenger to the iPad. Fire combines access to books, the web, movies, games and will retail for much less than the cheapest iPad, which sells for $499. Amazon features its new Silk web browser and will utilize free cloud computing backup. It also features 30 free days of Amazon Prime service, with access to thousands of movies, much like Netflix (Nasdaq:NFLX). (For related reading, see Four Online Shopping Alternatives To Amazon.)

Some Tech Specs
While some have said the Fire will challenge the iPad, others are not on board with this. There are also numerous other tablets in the field, such as Research in Motion's (Nasdaq:RIMM) Playbook, Samsung's Galaxy, Touchpad from Hewlett-Packard (NYSE:HPQ), and Xoom from Motorola Mobility Holding (NYSE:MMI). We've seen a bit of what the Fire has, but its early critics are concerned about what the Fire doesn't have, such as a cellular connection, though it does have Wi-Fi, camera or microphone. It will also run on an older Android operating system, the 2.1 Éclair.

Production Costs, Other Products
Piper Jaffray analyst, Gene Munster, maintains that the production cost for the Fire will be around $250 so that puts the retail price at $51 under such a cost projection. Munster believes that this loss per device could potentially cost Amazon 10% to 20% in its quarterly earnings. The idea undoubtedly for Amazon, if the Kindle Fire is a loss leader, is to make up the difference by exposure to many of its other products, such as its cloud service, Amazon Prime, as well as its app store, along with potential digital content purchases.

In addition to unveiling the Fire, Amazon also brought out its Kindle Touch e-reader, which will retail for $99 to $149. This will compete with Barnes & Noble's (NYSE:BKS) Nook, but once again there is disagreement over whether the Kindle Touch will really be a threat to Nook, or whether it will battle directly with it. Kindle will also feature a non-touchscreen e-reader, which will start at $79.

The Business And The Stock
Amazon's stock rose $5.50 on the day of the unveiling of the Fire and closed at $229.71. The stock has been trading within striking distance of its 52-week high, but at a lofty P/E of over 100. Its sales growth has been nearly 40% in the last twelve months, its earnings growth nearly 28%. Some investors figure Amazon will continue to do well, including Ridgworth LargeCap Growth Fund and Alpine Global Consumer Growth Fund, both of whose fund managers still remain bullish on the stock. The idea is that Amazon can afford the loss-leader and lower margin approach by selling with a view toward higher volume sales down the road. It's this long-term approach that Amazon has constantly deployed to gain its successes over time. This doesn't necessarily mean Amazon has the halo effect going with the Kindle Fire, but that the company continues to go in new directions and overall with an eye on the longer view. (For related reading, see Who Will Dominate The Electronic Textbook Market?)

The Bottom Line
Amazon is a company that historically has had far more hits than misses and the trend should continue that way. It's not necessary or even accurate to see the unveiling of the Fire as Fire versus iPad, but to see its tablet as another thrust in a business channel for Amazon. The company should be gauged long term and its progression from a one-dimensional, though highly successful, online retailer, to a wide-ranging retail and technology device service and media provider, is profound. Amazon's approach is why it succeeds.

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Tickers in this Article: AMZN, NFLX, RIMM, HPQ, MMI, BKS

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