Thursday, January 27, 2011

Amazon Has First $10B Quarter and It Totally Dominates the Retail Book Market by Market Cap

Founder and CEO of Amazon, Jeff Bezos said in a statement: "We had our first $10 billion quarter, and after selling millions of third-generation Kindles with the new Pearl e-ink display during the quarter, Kindle books have now overtaken paperback books as the most popular format on Last July we announced that Kindle books had passed hardcovers and predicted that Kindle would surpass paperbacks in the second quarter of this year, so this milestone has come even sooner than we expected – and it’s on top of continued growth in paperback sales."

Actually, Amazon sales last were quarter were $12.95 billion, an increase of 36% from the fourth quarter 2009 ($9.52 billion). Net income increased 8 percent to $416 million in the fourth quarter compared with net income of $384 million in the fourth quarter 2009, an increase of 8.3%. 

The total dominance of Amazon in the book market is illustrated in the chart above, which shows that the current market capitalization of Amazon at $82.8 billion, or 46 times greater than the combined $1.8 billion market value of Barnes and Noble ($928 million and 1,357 stores), Borders ($58 million and 511 stores) and Books-A-Million ($92 million and 223 stores). Call it a "Schumpeterian gale of creative destruction."


At 1/27/2011 8:56 PM, Anonymous Anonymous said...

This post is flawed in several ways. Market cap is not always a good indicator, particularly when shares are overvalued as they are with Amazon right now. They have a meager 3% margin and are trading at a nosebleed PE ratio of 75, which makes no sense at all. Further, they're very diversified these days, selling everything from groceries to watches, so it's not fair to compare them with book stores like Mark does. Mark's larger point stands, that the older bookstores are basically worthless in the face of online competition, but frankly Amazon has not done much in digital media and we still have a lot more innovation that's coming there. For example, the book is an outdated container and will disappear soon, whether in paper or ebook form, to be replaced by blogs and other more customized and interactive media. Amazon has built a nice online retail business, but all they really do is take existing goods and put them online and haven't shown much vision for what comes next, making it likely that they also will be put out of business by someone else.

At 1/27/2011 10:39 PM, Blogger VangelV said...

Does this mean the anti-monopoly forces will attack the company's position soon?

At 1/27/2011 10:43 PM, Blogger Buddy R Pacifico said...

This comment has been removed by the author.

At 1/27/2011 10:45 PM, Blogger Buddy R Pacifico said...

Sprewell asserts that pretty much all Amazon does is sell books, which is outdated or soon to be . The article states that Amazon just sold more e-books then paperbacks for the reporting period. The Kindle is the razor and e-books are the blades (Bezos evokes his inner Gillette).

BTW, a creative destrucion of textbooks is underway and being replaced by e-books.

At 1/28/2011 10:07 AM, Blogger morganovich said...

companies tend to price on forward earnings.

that makes amzn a 47 p/e, but that does not take into account their 3.8bn in cash and 5 bn in securities which takes 8.8bn out of the value ($19/share) dropping p/e on an enterprise value basis to about 42.

that's not cheap, but roughly in line with estimates for 40% eps growth next year implying a PEG ratio around 1 which is often taken to imply fair value. (though this is a debatable rule of thumb).

so, contrary to sprewell's assertions, amazon looks fully, but not terribly over-valued, which is not a surprising result for a company that is so dominant in its space and has been growing so strongly.

further, his claims that amazon has not done much in digital media are simply ridiculous. they pioneered digital books. they essentially created the whole space. they also do streaming PPV movies.

barnes and noble has turned into horrid money losers (estimated to lose 78c per share this FY, the 5th consecutive year of declining earnings) and have less than 20% of AMZN's revenues. amazon has crushed them and they are no saddled with expensive store leases that will never be able to pay for themselves, especially if the new quick print and binding technology catches on meaning that a 1000ft store could act like a book superstore in terms of fulfillment.

At 1/28/2011 12:20 PM, Blogger Ron H. said...

"BTW, a creative destrucion of textbooks is underway and being replaced by e-books."


I recall an earlier post here on the subject of e-books that included discussion of the fact that e-books books can be updated on the fly, raising the specter of the "Ministry of Truth" in action. A scary prospect.

Not that print books are a more accurate source, but at least they will read the same when you go back to question something.

I guess frequent secure backups are in order.

At 1/28/2011 12:37 PM, Blogger Ron H. said...


"especially if the new quick print and binding technology catches on meaning that a 1000ft store could act like a book superstore in terms of fulfillment."

Where can I learn more about this? I'm having trouble finding stuff.

At 1/28/2011 1:22 PM, Blogger morganovich said...


i saw this tech at a printing trade show maybe 18 months ago. i am trying to remember the name of the company that was making it, but cannot.

i'll take a look through my records and see if i can come up with it (though i'm a bit disorganized as i moved 3 weeks ago)

At 1/28/2011 1:25 PM, Blogger morganovich said...

basically, it was a printing and binding machine that could take a file and output a book in a couple of minutes.

this means that keeping books in inventory would be largely unnecessary.

it seemed to work at the show, but i have not seen anyone do anything with it, so perhaps there were reliability or TCO issues.

At 1/28/2011 1:44 PM, Blogger Buddy R Pacifico said...

morgan and Ron H, look at CreateSpace history for on-demand publishing companies purchased by Amazon. One could publish paper or digital versions of novels, poetry, travel guides etc. with a one week availability to distribution channels

At 1/28/2011 8:51 PM, Anonymous Anonymous said...

Morganovich, so you believe that Amazon is going to jump from their currently slowing 28% earnings growth this year to 40% sustained over the next 5 years? Lol, no wonder you finance guys always go bust with your dumb predictions. :) Amazon has been way overvalued for the last couple years, which seems to tie into when they started offering their new cloud offerings, called Amazon Web Services. The dummies on Wall Street apparently think Amazon'll be able to make that something worthwhile, while being completely ignorant of how easy it is for others to deploy such servers also. Precisely what space is Amazon dominant in? They're an online retailer, there are scads of those. Their 2010 US revenues were only 10% of US online retail sales, though they did grow faster than the overall market.

Lol, you think Amazon "pioneered digital books"? XD I don't know what's funnier, your ignorance of the subject or the fact that you then try to correct others. :D Yes, Amazon takes existing formats like paper books, ebooks, digital movies, and puts them online, long after others had been doing so. Hence my statement that they don't innovate and will not survive against those who do. As for Barnes & Noble, I already said they're worthless, not sure why you felt the need to break them down. As for print on demand, that's been available online for years now, from Lulu and Amazon themselves. The very fact that you're still thinking in terms of physical and retail distribution highlights how backwards your thinking on this issue is.

At 1/28/2011 10:55 PM, Blogger Ron H. said...


thanks for the info. I will see what I can find. I see that Buddy has provided a link, which I will check.

Howz Park City?


Thanks for the link. I will check that out.

While it's good to be skeptical about Amazon's future, they have done very well over the years. I remember the dotcom bubble years when they had no earnings, and the clock was always about to time them out. Somehow they managed to find financing and continue to burn through money. The stock price was insane multiples of any possible earnings. Those of us who were foolish enough to hang on have been rewarded.

At 1/28/2011 11:06 PM, Anonymous Anonymous said...

Ron, when did you get into AMZN exactly? Unless you got in before the runup in their stock in late 1998, you would have lost money until late 2009, when another silly runup began. Frankly, anyone who persevered with AMZN stock for 13 years, hoping they would pull it together someday or that another silly bubble would bail you out, shouldn't be investing. ;)

At 1/28/2011 11:44 PM, Blogger Ron H. said...


Thanks for the investment advice. I will consider your suggestion that I shouldn't invest.

Actually, since you asked, I've been in and out of AMZN several times since 1999, and have done quite well overall.


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