With many investors (including yours truly) ready to proclaim retail and technology giant Amazon (NASDAQ:AMZN) as the No. 1 contender to Apple (NASDAQ:AAPL), this makes its upcoming earnings announcement on Tuesday all the more interesting. Just as in sports where rivalries tend to bring storylines of both teams inside the lines of play on the field - or "the story within the story," the same can be said for these two technology bellwethers.
For a company such as Amazon, which revolutionized the antiquated idea of big-box retail, survived the dot.com bubble and placed a capital "E" in ecommerce, I continue to get the sense that it is not getting the respect that it deserves - and I would venture to say that Apple's success has had a lot to do with this. I have always appreciated that Amazon has many other rivalries beyond Apple. It is hated by not only fans of Netflix (NASDAQ:NFLX) because of its movie streaming Prime service, but also fans of retail giant Best Buy (NYSE:BBY) for the reasons having to do with what is perceived as an unfair tax advantage. But remarkably, it has now drawn the ire of the Apple faithful as well.
Last November the company launched an assault on Apple's tablet reign with the unveiling of its Kindle Fire to rave reviews. It was an instant success and was termed the "iPad killer" - much to the dismay of Apple investors. We learned exactly just how viable it was going to be in an article by Seeking Alpha contributor Erick Schonfeld. Erick noted the following:
- The Kindle Fire looks like a bona fide hit right out of the gate. New estimates from IHS iSuppli have Amazon.com shipping 3.9 million Kindle Fires this quarter, which would make it the No. 2 tablet after the iPad 2 (with an estimated 18.6 million shipments). The Kindle Fire will become the No. 1 Android tablet by a wide margin.
- To put this 3.9 million number in context, just remember that the very first quarter Apple sold the iPad back in September of 2010, it sold 3.3 million. So the Kindle Fire sold more in its first quarter than the iPad did in its first quarter on the market. Of course, Apple sold 7.3 million iPads the second quarter it was on the market, which was the 2010 holiday quarter.
With such acclaim, Amazon was said to be on the verge of accomplishing what rival Research In Motion's (RIMM) PlayBook was unable to do. With such early success, it became evident that Apple investors became unhinged at the possibility that anyone else could have any ounce of success in the tablet race. There was concern (for a brief moment) that just maybe Apple had indeed met its match.
The questions became, what can Apple do to issue a counter-punch? Should it immediately start production on a smaller version tablet to rival the Fire's $200 price point? Should it make an acquisition to better position itself from future competition? With all of its cash, maybe it should buy back shares to make its valuation more attractive to prospective investors? Apple was not accustomed to being forced to react - instead it is usually the one doing the forcing. But it now seems as all of this "concern" has been forgotten - and with good reason. I would like to say it was the calm before the storm, but all of the anxieties regarding its numbers were anything but calm.
Last week, Apple officially reclaimed its status as the world's No. 1 company according to market cap after reporting earnings that have run out of hyperbolic ways to describe it. But suffice it to say, they were "good." The company reported net income of $13.1 billion, or $13.87 per share, compared with net income of $6 billion, or $6.43 per share, for the same period of a year ago. Its iPhone sales came in at more than 37 million and profit more than doubled for its latest quarter, surging past analysts' estimates and causing revenue to jump a remarkable 73% to $46.3 billion. I guess we can fairly say that the Amazon's Fire didn't burn Apple. But it is remarkable to think had the Fire not been introduced how much more sales Apple might have reported.
This is Apple's storyline and (obviously) one that Amazon will be unlikely to duplicate and nor should it be expected to. But for Amazon, investors will be looking for momentum and more specifically, how much share its storied Kindle Fire been able to acquire since its launch. In its Q3 results, Amazon reported 44% growth in revenue and a 37% increase in organic revenue. It reported growth in media of 24%, during which it saw a 21% increase in media sales from North America.
As far as what to expect for Tuesday's announcement, this is really hard to say and depends upon whom you read. Several analysts are projecting earnings per share to come in the range of $0.16 to as high as $0.40. And it seems that investors are also waiting for signs to push the stock higher. But more importantly, the story will be how the company guides for the year. According to Stifel Nicolas analyst Jordan Rohan, in new research he lifted his estimate for the company's fourth quarter Fire sales to 6 million units from 5 million. He also added the following:
"For 2012, he lifts his revenue estimate by $2.34 billion to $67.2 billion, above the Street consensus at $65.3 billion; his EPS forecast of $2.27 is ahead of the Street at $1.88. Rohan expects the company to guide Q1 to a range of $12.4 billion to $13.6 billion."
I can only say that the plot now thickens with Apple's own robust sales projections and will continue to make this rivalry one to monitor the entire year. Because as with Apple, Amazon has become successful in disrupting the way we buy our products and the way we enjoy them. The Kindle Fire is one such example and I have to think that its creation was motivated by Apple and the iPad's dominance. For as brilliant of a CEO is in Jeff Bezos, it is undeniable that Apple forced him to enter the tablet race - one where the pursuit has proven to not be as laughable as the other carnage left behind.
By the early success of the Kindle Fire, Amazon has shown not only that it has the ability to execute but it is also keen on its evolution into untapped growth areas - even those where there is a clear uncut leader. The fact of the matter is, as much loathing as Apple has received for its achievements from the likes of Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT), Amazon's own recent Kindle Fire success has come with less revulsion from the competition - to the extent that many of them are even hoping that it does take a big bite out of Apple.
Disclosure: I am long MSFT, RIMM.