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Adetokunbo Abiola
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I am a writer, journalist, and a value investor. I manage my tech and oil and gas portfolio and engage in photography in my spare time. I write to assist investors find profitable value in the market.
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  • Can Amazon Prosper With Kindle Fire?

    Amazon (NASDAQ:AMZN) recently announced that the Kindle Fire HD and the Kindle Fire HD 8.9 are now available to its customers in 170 countries. The products will provide the company's customers with an access to the numerous solutions exclusive to the Kindle store. In this article, I want to show how the dominance established by Apple (NASDAQ:AAPL) will not allow Amazon to halt the decline in its sales growth with the products. This factor will not help Amazon to improve its electronics and its general mechandise revenue.

    Why will Amazon's electronics and general merchandise division show a decline in its sales growth? The dominance of Apple in the tablets market is preventing the sales growth of the products of its competitors. The researchers at Canaccord Genuity have forecasted that Apple will sell 101.6 million iPads units in 2013. Samsung (OTC:SSNLF) is projected to sell about 8.4 million tablets, while Amazon is predicted to achieve the sales of about 10.7 million tablets. The Amazon projections will not be enough to prevent the decline of its electrical and its general merchandise division and improve the price multiples of the company.

    Financial

    Amazon's sales growth improvement is not a guarantee with the Kindle products. In the first quarter, Amazon's revenues in the electrical and the general merchandise division were $10.21 billion, a 28% sales increase from the $7.97 billion recorded for the same period in the year prior. However, the division's revenues for the first quarter 2012 were a larger 43% net sales improvement compared with the same period in 2011.

    In the fourth quarter, the division achieved revenues of $13.94 billion, a 28% sales increase over $10.91 billion for the same period in 2011. However, the revenues of the electronics and the general merchandise division for the fourth quarter of 2011 showed a bigger 48% improvement over the figure recorded for the same period in the year prior.

    Amazon and Kindle Fire

    Amazon has unveiled a number of strategies to increase the usability of the Kindle products since they were introduced into the market. The company has made its tablets to allow for better legibility. Amazon improved the industrial design of the products and cut their screen glare over the years. The company improved the pixel density from 169 pixels-per inch to a reasonable 216 PPI on the new 7-inch tablet and a 254 PPI on the 9-inch version.

    The newly available Kindle Fire products include a customized HD display with an in-plane switching and a laminated touch-screen sensor for a 25% less glare and a rich color. "Kindle Fire HD is the number one best-selling item in the world for Amazon since its launch, and we're thrilled to make it available to even more customers around the globe today," said Dave Limp, Vice President, and Amazon Kindle. "Not only does Kindle Fire feature advance hardware, it's also a service."

    Amazon wants the products to reverse the problem of a decreasing net income and halt the perpetual decline in its sales growth. Unfortunately, the Kindle Fire has not been able to accomplish this objective or halt the slide in Amazon's fortunes. This is dangerous to Amazon as it will not make it to gain a head start over its rivals.

    When we take another look at the revenues of the electronics and the general merchandise division in the recent results, we notice a decline in the percentage of its net sales growth year-on-year. It is clear that Kindle Fire has not corrected the problem.

    With a forward price to earnings ratio of 87.43, Amazon is not trading cheaply compared to 10.02 for Apple and 16.50 for Google. The newly available Kindle products will not prevent a decline in the net sales growth of the electronics and the general merchandise division. They will not improve the price to earnings ratio and establish a new benchmark for a great performance.

    Competition

    How is Amazon performing in relation to its rivals? With an EPS of -0.19, compared with 31.90 for Apple and 33.42 for Google (NASDAQ:GOOG); a price to earnings of an indeterminable figure, compared with 26.34 for Google and 10.51 for Apple, Amazon is not doing too well. In the next few months, Amazon's Kindle products will contend with a new version of Google's Nexus 7 and Apple's iPad mini. Asus will produce the new Nexus 7 device, and Qualcomm's Snapdragon will replace the Tegra chip from Nvidia. Apple has changed its course and will direct its energies toward the sale of the iPad mini. Amazon will not be able to overcome the competition and improve its price multiples.

    Conclusion

    There are too many risks involved with buying an Amazon stock. The company's earnings per share have declined from $2.53 in full-year 2010 to $-0.3 in full-year 2012. Amazon had an amazingly high price to earnings ratio of 3430.72 as at Dec. 31, 2012. Its margin is very thin. Based on the past performance of the Kindle products and the dominance of Apple, we can say the newly available products will not halt the decline of the Amazon electronics and general merchandise division. Looking at Amazon's price multiples in relation to Amazon and Google, we can say it is not a good buy for the long term.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Jun 12 2:01 PM | Link | Comment!
  • Why Google Has A Chance With Google+

    Google (NASDAQ:GOOG) has updated its Google+ app for Android with improvements in photo, location, and streaming. The updated product enables users to experience automatic photo enhancements, better photo edits, and easy functionality that the desktop version has. In this article, I want to explain how increase in consumer purchases will enable Google to boost its revenues with the improved product. This factor will help Google to improve its revenues by 5%.

    How will Google's price multiples improve? Users of social media increasingly depend on virtual social networks for transactions. This trend is driving online purchases. For instance, Euromonitor International, a research firm, predicts that global internet retailing value will grow by 15.3% in 2013 to $601 billion. Aware of this development, companies increase their online advertising spend level to benefit from the trend on social media platforms. Google+ will benefit from this development through the online advert spend of companies. This will boost Google's revenues and improve the price multiples of the company.

    Financial

    Google's sales growth is bound to occur. Google+ and other online platforms have already improved the company's advertising revenue in comparison to the year-ago total. Google's advertising revenue in the first quarter was $12.95 billion, a 22% increase over first quarter 2012 revenue of $10.65 billion. The online advertising revenue represented 93% of the company's consolidated revenue.

    "We had a strong start to 2013, with $14.0 billion in revenue, up 31% year-on-year," said Larry Page, CEO of Google.

    In the fourth quarter, Google's advertising revenue was $12.91 billion, a 22% increase over fourth quarter 2011 revenues of $10.58 billion. This figure represented 89% of Google's consolidated revenues.

    "We ended 2012 with a strong quarter," said Page. "Revenues were up 36% year-on-year, and 8% quarter on quarter. And we hit $50 million in revenues for the first time last year - not a bad achievement in just a decade and a half. In today's multi-screen world, we face tremendous opportunities as a technology company focused on user benefit. It's an incredibly exciting time to at Google."

    Google And Social Media

    Google has initiated social media projects in the past. The company developed Google Buzz as a social networking platform to be integrated into its e-mail program, G-mail. Google also developed Google Wave as a web-based computing platform to merge e-mail and social networking.

    However, Google+ has become compulsive and influential. The updated version will enable users to easily and comfortably store their photo as they snap them. The product now has an auto backup and allows users ability to enhance their photos. It turns the Google phenomenon into something similar to Wikipedia.

    Google needed to update Google+ to drive online consumer purchases and make businesses increase their advertising spend level. Fortunately, Google+ has attracted a lot of users and is the number two social media network. Google+ is important as Google aims to stay ahead of its rivals.

    When we take a look at Google's financial reports, we notice that the advertising revenues showed year-on-year improvement. It is clear that Google has been improved by products such as Google+. So it can be said that the solution is making progress.

    With a price to sales ratio of 5.63, Google is trading competitively, especially given its impressive gross margin of 57.45%. The Google+ update will increase the company's advertising revenue, improve its EPS of 33.42, and further grow its net income of $3.35 billion. Investors will enjoy benefits from robust earnings that create a new standard for growth.

    Competition

    With an EPS of 33.42, compared with 0.05 for Facebook (NASDAQ:FB) and 3.45 for Yahoo (NASDAQ:YHOO), price to sales of 5.63, compared with 11.35 for Facebook and 5.87 for Yahoo, Google is doing better than its rivals. Recently, Facebook enlisted Android to bring users' news feeds directly into their screen. Google's update negates the effect of any improvement to Facebook. Yahoo wants to buy Tumblr for $1.1 billion for a much-needed platform in social media. The Google+ update enables Google to have the platform to face the Yahoo challenge.

    Conclusion

    Based on the growth of Google's advertising revenue and the prospects in the social media space, we can say the Google+ update will improve the fundamentals of Google. Looking at the price multiples in relation to Yahoo and Facebook, we can say Google is a buy for now.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: FB, YHOO, GOOG, long-ideas
    May 23 11:44 AM | Link | Comment!
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