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Amazon Heading To India, Finally

Posted on Tuesday, Aug 2nd 2011

According to the Association of American Publishers, e-book sales reached $441.3 million last year from $61.3 million reported two years ago. In a survey conducted by the Book Industry Study, it was found that within the U.S., a quarter of those surveyed had switched to electronic books. Players like Amazon are counting on capturing further the yet untapped market.

Amazon’s Financials
Amazon’s (NASDAQ:AMZN) Q2 revenues grew from $6.57 billion a year ago to $9.91 billion with revenues from electronics and general merchandise growing 69% over the year to $5.89 billion. Revenues from books, CDs, DVDs and other media jumped 27% to $3.66 billion. The Street was projecting revenues of $9.38 billion for the quarter.

Amazon’s rising costs pulled their earnings down to $0.41 from $0.45 a year ago, but managed to surpass market expectations of $0.35.

For the current quarter, they project revenue of $10.3 billion-$11.1 billion with an operating income of $20-$170 million. The market had projected earnings of $311.7 million on revenues of $10.4 billion. Amazon’s costs have been on the rise because of their continued investment in setting up fulfillment centers and increased R&D expenses. They are now looking at setting up 15 fulfillment centers this year compared to the nine projected earlier. They are rumored to be working on developing a tablet and an upgraded Kindle for launch later this year.

International Expansion
Amazon is focusing on spreading its presence globally. Recently, they announced plans to increase their fulfillment center presence worldwide and are looking at establishing centers in markets such as Australia and Mumbai.

They also expanded their presence in the book sales segment in the U.K., through the proposed acquisition of online book seller, Book Depository. The deal is expected to cost Amazon less than $200 million. Amazon currently claims an estimated 70% share in the UK online book market and will expand their leadership further with the proposed acquisition. Book Depository sells physical books through its online store and is followed by over one million customers because of their worldwide free shipping policy on their collection of more than six million titles. Additionally, Amazon will be able to leverage Book Depository’s UK-based fulfillment center for their other merchandise.

Again, within the UK, they acquired IPTV App designer, Pushbutton. Pushbutton had built the PS3, Sony Internet TV and Samsung Smart TV apps for their earlier acquisition, Lovefilm. Through the acquisition, Amazon will gain presence in YouView, the UK-connected TV consortium of public broadcasters and ISPs.

They are working on spreading Kindle’s geographic dominance. Currently, the Kindle’s only foreign language store is in German. Amazon, however, has plans to launch stores in Italy, France, Spain, and the Netherlands by the end of the summer. Many believe that their recent agreement with Italy’s largest book publisher, Mondadori, will help push Kindle into Italy. Through the agreement, Mondadori will provide 3,000 e-book titles for sale to Amazon by the end of the year.

Among emerging markets, India is said to be on their list. India’s e-commerce market was estimated to be worth $5 billion in 2010 and is believed to be growing at double-digit rates. Amazon is rumored to be in merger talks with India-based online retailers including Letsbuy.com, FlipKart, and Exclusively.in. My earlier interview with FlipKart CEO Sachin Bansal can be read here.

Kindle Growth
Amazon recently launched Kindle 3G with special offers. The product claims to be their biggest best-seller ever. Priced at $139, the Special Offers Kindle is supported by players like AT&T. Amazon has, however, maintained silence on the number of Kindle units that they have sold to date. The market estimated sales to have crossed eight million units last year alone.

To grow e-book sales on the reader, the company recently launched a promotion called The Big Deal. The promotion more than over 900 titles on sale for prices ranging from $0.99-$3.99 for a limited period. The titles up for sale include those by the Big Six publishers: Random House, HarperCollins, Hachette, Simon & Schuster, Penguin, and Macmillan. Additionally, they are also now offering e-book rentals of text books for college students. The Kindle Textbook Rental service lets students rent college textbooks from the Kindle store for a period of 30 days to a year. Students will also be able to save their margin notes and comments on the cloud after the rental period has expired. While the rental prices vary, they are estimated to offer savings of as high as 80% on the cost of the book.

Amazon’s Expanding Movie Content
Amazon also continued to build a stronger video streaming business. They recently entered into an agreement with NBCU and CBS for streaming access to movies and TV shows. The agreement with NBCU will make Oscar-winning movies such as “Eternal Sunshine of the Spotless Mind,” “Gosford Park,” and “Elizabeth” available to Amazon Prime viewers for streaming online. Following the agreements, Amazon now has a catalogue of more than 9,000 movies and TV shows available for online streaming – still a far cry from Netflix’s collection of 20,000 titles.

Amazon’s stock is trading at $221.32 with a market capitalization of $100 billion. It touched an all-time high of $227.20 last week. As of now, it looks as though there is nothing to stop the company’s growth.

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