Amazon unveils Kindle E-Book Reader, Will it Hit with Customers and Shareholders?

Amazon (AMZN) has seen a resurgence on Wall Street this year as the company has tried to change the way it does business with an influx of technology spending. Financial results has been excellent but technology results have been mixed, with the difficult to manage and use Unbox Video Service and the new and promising MP3 store. The latest offering from the Tech department at Amazon in the Kindle E-Book Reader.

It's official unveiling was today, but technology blogs and news sites have been after the device for sometime. Popular spots; Engadget (Link) and Gizmodo (Link) were on top of this latest gadget all morning. CEO Jeff Bezos claimed that he hoped Kindle would do for books what the iPod did for music online. Amazon shareholders certainly hope he's right. The stock has been bid up considerably this year but has since fallen over 20% from highs of $101/share. With a share price just under $80 the company seems like a potential strong buy, but even these discounted levels are coming from loftier highs. Amazon sports a P/E of over 90 and a trailing P/E of over 50. Even poster children for growth, Apple (AAPL) and Google (GOOG), sport ratios that are half of Amazon's.

If Kindle becomes even half of what iPod is, shareholders will have plenty to cheer about, but that is certainly a big IF. The Kindle sports some very nice features, looks small and sleek enough to justify a slight Cool factor. It's obvious Amazon techies spent a long time making sure the thing didn't look like it was beaten with an ugly stick while they shoved all sorts of hardware inside. The Kindle in essence is an electronic book reader, and any one with any sort of personal library could use one on the go for reading. So first let's take a look at the positives.

Amazon's got the content (in this case books) to support this venture, and in time I'm sure a vast majority of the Amazon library will be available for purchase for $9.99 or less. The device works with all sorts of formats but converts them to Amazon's proprietary reader format. The battery will last about 30 hours and a consumer will be able to automatically get subscribed newspapers and blogs sent to the device. That's right, the bright minds at Amazon decided to make this a wireless device that works on the cellular network for free through Amazon's covert WhisperNet. No word yet if WhisperNet is self-aware and may malfunction like its more famous cousin SkyNet. All jokes aside, the technology here is a big selling point. EVDO based cellular Internet will allow users to download books, newspapers and blogs that they have paid for, automatically and without a computer connection. So you're not killing your eyes staring at a screen the whole time the Kindle sports an e-ink screen that isn't back-lit to make reading easier. A definite plus there.

Now some negatives. It's pricey at $400 but compares relatively well to the Sony (SNE) E-Book Reader. Stylistics is a subjective game and rarely are devices or products uniformly praised for their elegance. So there's a fair chance that the public will think it is in fact a pointy, clunky ugly device, but I disagree. By no means is the thing gorgeous but it isn't bad, even if the slanted keyboard keys seem quite awkward. It's difficult to say at this point how the distribution and downloading of content will work but horror and wonder stories should trickle in as the device gets into the hands of the consumers. The real problem I see with the claim that the Kindle will be the "iPod for books" is the fact that one's personal library is as sacred as anything else in the household. The book-reading and book-owning population loves to fill shelves with books as it instills a sense of pride much more than a music collection does.

So the average song is somewhere between 3 and 4 minutes while the average book 300-400 pages. Reading a page a minute requires more than 5 hours of reading for the average book. Music is simply consumed and changed much faster than books. While carrying an entire CD collection during a trip makes little sense, carrying one book isn't all that bad. You can't exactly switch the Kindle to random and read pages from one book than another. Also, it's a well known fact that every iPod is not filled with music from the iTunes store. Majority of this music comes from CD collections that users had purchased throughout the years than ripped to the device for portable use. This process is simply not feasible with books, for obvious reasons, so to be able to take your favourites with you on the Kindle you'll have to buy them again digitally. Something I'm guessing most consumers will not want to do.

While I have serious doubts about the Kindle becoming some kind of iconic reading device, it is a very strong step in the right direction from a company that is also turning itself in that direction. While I think shares are overpriced today, a slide back towards $70 or under would make things very attractive considering there is upside to analysts estimates of $1.78/share in earnings for next year. Provided the economy in the United States stays relatively strong, and is not brought to its knees by the credit crisis and weakening dollar I would have no problem paying 35 times 2008 earnings, with upside to nearly $2/share, for Amazon and its future growth prospects.

To be as ubiquitous as the iPod, the Kindle has a long way to go but the youth of today are living in a digital age and the old adage of being able to hold on to, and feel what you buy is slowing fading away. Content will be king, content will be digital, and Amazon hopes that content will be on your Kindle.

Disclosure: Author currently does not own AMZN

Amazon Rewarded for Earnings Beat, but is the Party Over Now?

Amazon (AMZN) has stepped back into the good books of Wall St. with a run of increasing profitability that's making all those short sellers very nervous and is leading the stock to highs it hasn't seen since the Internet boom. Prior to yesterday's post-market-close earnings results, Amazon held an outrageous P/E in the 140s. Now that's paying for growth! But the company is delivering on this growth promise as it reported $0.19/share vs. the estimate of $0.16/share, and handily topping last year earnings of $0.05/share during the same quarter.

Current year-end estimates, which are bound to be raised by analysts soon enough put earnings just north of $1/share, which at current levels has Amazon sporting a P/E in the 80s when it reports for the December quarter. Do growth prospects continue to justify this valuation or is this a classic example of a tightly held company in a sudden short squeeze after a solid quarter. About 15% of outstanding shares were shorted as of mid June and it seems like that has something to do with today's 25% spike northwards. There has been contention over the last couple of years that the company is spending too much on internal technologies and off-shoot ventures like the UnBox movie downloads and the ever-popular music store in development rumors. A deal with TiVo to stream movie downloads to owners of the popular DVR device in tow and consecutive blowout quarters with ever increasing guidance has certainly silenced the critics.

Back in April when the company blew earnings out of the water it upped guidance to $13.40-14 billion in revenue for the year, and with the latest results lifted guidance to yearly revenue of $13.80-14.30 billion. Notice the pattern here? Everything seems rosy here doesn't it, but as any growth company can attest to, playing the ever increasing expectation game can be like walking a tightrope with a safety net made out of razor wire. Not only would the fall hurt, but the landing would as well.

Amazon's Prime service seems to be a big hit, it allows customers to pay a yearly fee for free shipping, and it is ideas like this that will eventually drive margins higher as Amazon cuts prices to sell more goods. The brick and mortar retailers, especially on electronics have been pushing these high-margin extended service/care warranties for years. Best Buy and Apple, through the ProCare program, love the revenue these services bring their respective companies.

All in all, while a compelling story, I for one think the Amazon boat has sailed for now and needs to dock before I would board. There was a great opportunity here for stock and option players and it should be time to profit take as I can surely see a downward spike coming before another one happens that would continue the climb. The market stays irrational for much longer than people usually think and while there might still be something here, I don't like the odds at these levels with a P/E that can seemingly only come down. If Amazon were to double profitability next year to $2/share you're still looking at a company with a forward P/E right now of almost 50. Now with Analyst estimates, likely to rise for 2008 from $1.30 per share the company has a lot of work to do to justify its price tag.

Disclosure: Author holds no position in AMZN