Amazon ( AMZN ) sells several models of Kindle e-reader and Kindle Fire tablets aimed at capturing the fast growing market for mobile devices. We estimate that the sales of Kindle devices stood at roughly 20 million in 2013, bringing about $3.9 billion in revenues. However, the overall value of Kindle franchise extends beyond hardware sales and appears to be a strategic pursuit by Amazon to promote and sell digital content. In this analysis we'll try to gauge Amazon's e-book sales through Kindle e-reader. Based on our assumptions and estimates, we conclude that the company may be earning between $265 million to $530 million a year from e-books alone. That's still small in comparison to its overall revenues. Let's see how we arrive at this estimate.
Our price estimate for Amazon stands for $373 , implying a premium of 10% to the market price.
While the chart above shows total Kindle device sales which include e-readers and Kindle Fire tablets, we have separate estimates for Kindle e-reader alone. The annual sales for Kindle e-reader peaked in 2011 to roughly 13.44 million, followed by a decline in 2012 when the figure totaled an estimated 9.68 million. The sales in 2013 were more or less flat, which suggests that roughly 43.7 million Kindle devices had been cumulatively sold till the end of 2013.
Amazon launched its Kindle e-reader in late 2007. Assuming a 3-year replacement cycle, we conclude that there may be approximately 30 million Kindle e-readers currently in use. Looking at the Kindle library, it is easy to notice that most e-books are priced between $4 and $10, with a slight skew towards lower-priced books. Therefore, we assume average price per e-book at $6 for the purpose of estimation. Additionally, we also know that Amazon gets a 30% cut on sales of most e-books with remaining 70% going to the publisher. Keeping these figures in mind and the assumption of 5 e-books sold annually per Kindle e-reader owner, we arrive at annual revenues of close to $265 million. If we assume a figure of 10 e-books sold annually per Kindle e-reader owner, the annual sales will amount to $530 million. There is room for error here, but the assumptions are reasonable enough to give us an idea of a probable range of revenues.
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