Why 2012 could be Amazon’s year
In recent years Amazon the former online book store has expanded its offering and in the process increased revenue from $3 billion in 2001 to $48 billion to 2011. This has been achieved through selling its products at heavily discounted prices; so much so that in 2011 its net income dropped to $631m from $1.4b in 2010. In 2012 I expect Amazon to not only continue to grow its revenue but also to significantly increase its net income thanks to three major developments.
Online video streaming
In 2011 Amazon launched its fourth generation tablet the Kindle Fire at a heavily discounted rate, in some cases up to 50% cheaper than some Apple iPad models. The move was criticised by some industry analysts and the decline in net income for 2011 seemed to support this position. However Amazon’s pricing policy proved popular with consumers and in Q4 it shipped 4.7 million units giving it a 16.8% share of the tablet market, making it the second largest manufacture behind Apple.
With this market share it has a readymade customer base for its new online video streaming services Prime Instant Video & Amazon Instant Video. Online video streaming is a fast growing multi-billion dollar market which Amazon is set to dominate thanks to having achieved something Apple has failed to do – secure distribution deals with major Hollywood studios. Its latest digital video license agreement with Discovery Communications means it now has over 137,000 titles which include the latest movies and TV episodes, making it the biggest supplier in this market.
With two new tablets set for release in 2012 – one, like the Kindle Fire, will be a 7-inch model, while the other designed specifically for video streaming will have a 10-inch display, which will further increase its customer base.
E-books & E-singles
According to a US Dept of Justice ongoing investigation, Apple and five major publishers – Penguin Group USA, Hachette Book Group, HarperCollins, Macmillan, and Simon & Schuster implemented a pricing policy known as the agency model designed to over price e-books and in the process hinder the growth of Amazon. If (as expected) it is found to be illegal, Amazon will be able to return to its previous pricing policy which gave it greater profit margins. On top of this in February Amazon announced its sales of e-books had increased five-fold in 2011 and that as of last May, it’s selling more e-books that its combined printed matter, just four years since their launch. Added to this it also has e-singles which debuted last year and sold over 2 million units. I anticipate the growth trend for e-books and e-singles to continue in 2012.
Over the last decade Amazon has been quietly expanding its business to sell not only its own merchandise and the merchandise of third-party merchant partners, but to sell links and advertising to other third-party merchants that Amazon may have no other affiliation with. These links and ads generated more than $1billion last year, minuscule compared to the $40 billion Google generated but as these adverts are much more visual and targeted than some Google search results, I expect that it’s a side of its business that’s growing rapidly.
I predict that these three major developments will not only help Amazon to become a more dominant technology player in 2012, but it will also boost its net income and enable it to enter the Standard & Poor 500 top ten for the first time in its history.