Amazon.com (AMZN) just keeps growing, and with a couple of Summer announcements, it is now set to become a bigger force in the gaming industry. I have doubts about its ability to become a major player, but growth and additional customers will make its e-commerce business even more successful.
Amazon is currently trading around $243, and its 52-week range is $166.97 to $246.71. Its market cap is roughly $97.36 billion, and its trailing P/E is 178.43. Shares are up over 40% this year, with the general trend moving upward.
One major alteration in Amazon's gaming business relates to mobile gaming. It has now released its GameCircle, which allows Kindle Fire gamers to record and track achievements and view leaderboards. These features make gaming on the Kindle Fire more comparable to gaming on Apple's (AAPL) iPad, as the iPad's Game Center is quite similar to this. The GameCircle also allows gamers to sync game progress to a cloud, making it easier to switch between devices or uninstall and reinstall a game. This distinguishes GameCircle from Apple's Game Center. Apple offers multiplayer functionality though, and Amazon does not. As a result, Amazon is still at a disadvantage, but the launch of GameCircle will certainly make its product more competitive when it comes to gaming.
GameCircle will only be beneficial to Amazon, furthermore, as it currently applies solely to the Kindle Fire. It does not work with the Amazon Appstore in general, which works largely with Google's (GOOG) Android devices. This will help Amazon take a bigger portion of the market share in the mobile gaming market, and it will promote the Kindle Fire and not just the Amazon Appstore.
The second development from Amazon is a little more interesting, and it will help the company compete more with Valve's Steam company in PC gaming. Amazon has launched Game Connect, which is an e-commerce system that includes downloadable free-to-play PC games. Amazon has previously made a similar effort in 2010, but this one is more similar to the successful Steam company. Furthermore, Game Connect focuses largely on making it simple to shop for virtual goods, which is appealing to developers and brings in more money for Amazon. It will share 70% of virtual good revenue with developers, but there is still a lot of room for profit, as this largely opens up a new e-commerce market for Amazon.
This is certainly a good time to focus more on the PC market. PC-based game sales amounted to over $80 million last year, which was up 230% from the prior year. Further confidence in the PC gaming market comes from huge successes like Activision Blizzard's (ATVI) Diablo III, which was a top title in the month of May. This positive outlook is in contrast to the falling numbers in the console market, as console sales revenue had declined 28% over just a 6-month period, based on a report by the NPD Group. This is bad news for Sony (SNE) and Microsoft (MSFT), which have a dominant presence in the console market. This will be greatly beneficial to Amazon though, as it is beginning to make its way into the rising PC market.
Steam is also making deals to pull more customers away from console gaming and into the world of PC gaming. It worked out a promotion with GameStop (GME) from July 14 to July 23, allowing customers to get an additional 30% value on trade-ins if they transfer the credit to their Steam Wallet. This is a small promotion, but it shows that the PC market is looking to take customers away from the console market. Based on recent sales numbers, it appears to be working.
Amazon is making good moves to improve its services and expand into rising markets in the gaming world, but one must still wonder whether or not it can be successful.
I think the first move will be moderately successful, as its GameCircle certainly makes the Kindle Fire's gaming platform more competitive with Apple's. Some note that Amazon still needs to attract more developers by improving its developer tools. I agree that this is true, but these new features will certainly still have a positive effect. The more significant criticism is that the Kindle business only contributes to roughly 3.3% of Amazon's value. With this in mind, there are other factors that remain far more important.
The problem with Game Connect is that it may not be able to compete with Steam, which is already well-established in the gaming market. Amazon has not yet made a place for itself in the gaming industry, and it will be difficult for it to become a major player. This should not have a negative impact on Amazon in any way, but like with GameCircle, I just do not think it will have a huge effect on Amazon stock.
These are only small points of strength for Amazon, but I do think they will be beneficial additions to the company. There is even the chance that Game Connect will take off, so there is an opportunity for reward with there being little risk. With this in mind, Amazon gaming could be a serious lift in long-term revenue. There is obviously more to consider with the company, so I do not recommend investing in this stock based solely on these developments. I would keep these positive developments in mind though, and especially if the stock drops to a better price, I believe it could make for quite a good long-term investment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.