Amazon's e-Book Sales Surge: Was It the Kindle or the iPad App?

Includes: AAPL, AMZN
by: Larry Dignan

Amazon (NASDAQ:AMZN) is selling 1.8 e-books for every hardcover and the conventional wisdom dictates that the Kindle device is driving those sales. However, it’s quite possible that the Apple iPad is driving Amazon’s e-book sales as much if not more than the Kindle.

The company said Monday that the Kindle, which will now run you $189, is at a demand tipping point. Amazon, which never gives you hard figures on Kindle sales, said units have tripled since the price was cut from $259 to $189. The natural assumption is that more Kindles equate to more e-book downloads. That’s true, but consider:

  • Over the past three months, Amazon has sold 143 Kindle books for every 100 hardcover books;
  • Over the past month, Amazon sold 180 Kindle books for every 100 hardcover books.

The rub: Amazon’s price cut was a month ago and definitely helped accelerate things. However, the Kindle to hardcover book ratio was already at an inflection point three months ago. What happened a little more than three months ago? The iPad launched. On April 3, the iPad debuted and sold 300,000 devices. Eighty days later Apple sold, three million iPads.

Meanwhile, Amazon was all set with its snazzy Kindle iPad app. Looking at the figures, it’s reasonable to suggest that the Kindle price cut was icing on the e-book cake and the iPad app juiced e-book sales. The last time Amazon shared the e-book to physical book ratio was in the fourth quarter. At that time, Amazon sold 60 e-books for every 100 physical books (the company was only comparing paid books with digital and physical editions).

The most plausible reason for the e-book jump is the iPad. Jefferies analyst Youseff Squali connects the iPad dots:

We believe that Kindle’s e-book sales are benefiting from the launch of the iPad, since the Kindle e-book store offers a broad (and probably the richest) selection, with over 630K titles, which iPad owners can easily chose from.

Our current estimates for 2H10/FY11 could also prove conservative as we assume only 10% Y/Y growth in Kindle device sales with no contribution to e-book sales from the iPad. A more probable scenario, based on a higher unit sales of Kindle and e-books, yields an additional ~$100M and $200M upside to our revenue estimates for FY10 and FY11.

Squali reckons that there will be roughly 4.62 million Kindles in circulation by the end of the year. Given that figure, it’s likely that the iPad led to Amazon’s e-book inflection rate.

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