While Amazon.com (NASDAQ:AMZN) seems to go from strength-to-strength in most of its business, the last year has seen a crisis develop in the area where it first started - books.
The Kindle e-book reader is now nearly 10 years old, having been introduced way back in 2007, and the developing world's e-book markets are pretty well saturated. Trefis estimates they peaked back in 2011, at 13.44 million, and then declined to under 10 million the next year. Sales were said to have "collapsed" last year, and some retailers seems gleeful to take it off their shelves in favor of actual books.
A multi-year fight over e-book pricing with major publishers did not help. The settlement seems to have been poorly received by book buyers since new e-books came to be priced close to what physical books cost. Consumers, it seems, resist e-books (which they really only license) as the price gets to about $10, because they know the conditions and figure they should get a bigger break buying electronic files.
Not all the news is bad. Sales are strong in India and China. The total e-book market is expected to top $13 billion in 2020 and Amazon is bound to get a big share of that although, since 2015 sales were $108 billion, some may ask whether it matters.
Still, a refresh was needed, and will be announced this week. A leak of the product shows what may be a removable battery, with a battery lasting several days. There are unconfirmed reports of solar cells in the case which could completely liberate the Kindle from the grid. The new Kindle is due to read more like a paperback, in one hand, and weigh-in at a little over 4 ounces. Pricing is expected to come in at around $150, including the case. Current models cost under $80.
The question is whether this will really jump start sales and if so what that might mean for investors. The answers are maybe, and not much.
As previously noted, Amazon is now a lot more than a bookseller. Even if it can get sales back to that 2011 revenue you're still talking about just $1.5 billion in revenue. Amazon is very, very good at monetizing content, and it dominates that e-book market, but you're still, in the end, talking about less than $10 billion on a company trying to grow 20% this year off a $108 billion base.
The whole e-book market, which Amazon created and nurtured, is thus of greater interest to writers and publishers than it is to investors. It may well be true that publishers got greedy with Amazon on pricing and that Amazon was right on that issue. It may well be that Version 8 of the Kindle will be a big hit. But even if this is all true, it won't really move the needle on Amazon's top or bottom line. The revolution is over and the market is mature.
For Amazon to move that needle investors will need to see skyrocketing sales in India, strong growth in the cloud and continuing growth in merchants using its fulfillment infrastructure. It can get all that, but the Kindle will henceforth be a sideshow to Amazon's investment thesis.
Disclosure: I am/we are long AMZN.
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.