The Future of Amazon's (AMZN) Cloud
PUBLISHED ON: Jul 16, 2012
Shares of e-commerce giant Amazon (AMZN: Charts, News) have risen over 25% since the beginning of the year, outperforming the market and silencing bears who consistently claim that the company's trailing P/E of 178 is unsustainable. Yet Amazon has remained a staple stock of growth investors, and its $199 tablet, the Kindle Fire, has proved that it can disrupt markets just as well as Apple's (AAPL: Charts, News) iPad.
The Kindle Fire tablet, sold at a loss in order to hook new customers into its e-commerce ecosystem of e-books, movies, games and retail goods, claimed over half of the Android tablet market last year by using a forked Android system that cuts Google (GOOG
) and its Play Store out of the picture. Daily Chart
Now, new rumors have surfaced regarding Amazon's highly anticipated follow-up to the Kindle Fire. Amazon's new platform, GameCircle, notably resembles Apple's social-gaming network Game Center, which is available on iOS devices. GameCircle improves on Game Center's system by allowing gamers to directly sync save games over Amazon's cloud service, which also stores music, video and e-books for Amazon customers. GameCircle includes an option to "switch between Kindle Fire devices", which has led industry watchers to speculate that Amazon is preparing to launch several new variants of its flagship tablet. Early reports claim that Amazon is preparing a larger Kindle Fire tablet to compete with the iPad, as well as a new version of its 7-inch model. ABI Research analyst Aapo Markkanen went one step further to suggest that an Amazon smartphone could succeed the next series of Kindle Fire devices, as early as the first quarter of 2013. Amazon is also reportedly studying the viability of a TV or a media hub device. Each of these devices could be equipped with the same Amazon forked Android storefront which is found on the Kindle Fire, which guarantee that it will be the first stop for all its users. "That's one of the key advantages of the cloud, storing content that can migrate from device to device," Markkanen noted. "It's a natural extension to add more devices to the mix." Amazon currently offers up to 5 GB of free storage to each customer for storing music and media. These files can be streamed to the Kindle Fire and other mobile devices using Amazon's mobile apps. The Amazon Prime program, which offers free two-day shipping on select items, free streaming movies and TV shows, and access to the Kindle e-book lending library, has proved to be a popular option among Kindle Fire owners, and through its mobile apps, it could reach even more Android and iOS users. Mike Morgan, a smartphone analyst at ABI Research, also noted that due to Amazon's massive cloud network, it could subsidize the cost of upcoming mobile devices and even bypass carriers via advertising in its cloud network, an advantage that handset manufacturers could only dream of. In its first quarter, reported at the end of April, Amazon reported a 35% drop in earnings per share, from 44 cents to 28 cents per share. However, its revenue soared 34% from $9.86 billion to $13.18 billion. Analysts expected earnings of 7 cents per share on $12.9 billion in revenue. Amazon warned that although it would post revenue between $12 to $13.4 billion for the current quarter, it would post a large decline in operating profit due to heavy investments in the Kindle Fire and new shipping centers. Investors cheered this decision, since Amazon has been reluctant over its 15-year history to spend heavily on initiatives that impact margins and erode quarterly profits. The stock still trades at 85 times forward earnings, and has a 5-year PEG ratio of 5.4. These fundamentals seem to signify that the stock is overvalued and growth could be sluggish on the horizon. However, buying interest in the stock remains strong, and a new flurry of cloud-based devices could turn the market on its head. Other News About AMZN Amazon's Smartphone Becomes A Reality
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