Wall Street's Thoughts On Amazon.com (AMZN) Losing E-Book Price Dispute
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A number of Wall Street analysts are commenting on Amazon.com (Nasdaq: AMZN) today after the company was forced to capitulate to publishing giant Macmillan's demand for higher e-book prices. The new price model from the publisher will have its e-books priced at $12.99 to $14.99, up from $9.99. Shares are down 5.9% today on the news, but well off the lows of the day.
A few of the firms said today's sell-off is an overreaction. Another called it a chink in the company's armor and yet another said implications include Amazon.com losing control of e-book pricing, and thus its competitive advantage versus Apple (Nasdaq: AAPL).
- Kaufman Bros: "Believe sell-off on new digital pricing for Macmillan is an overreaction... Pricing change would likely help profits even with some share losses...We continue to believe eBooks/Kindle will be a niche product vs. mass market product (i.e., iPod) and Amazon is biggest share gainer for physical book sales...Believe convenience is just as important as price for eBooks." Maintains Buy rating, $160 price target.
- Piper Jaffray: "We believe Amazon's capitulation to Macmillan that will force Amazon to adopt an agency model in which it allows all publishers to set the price of their digital books is a positive for eBook margins and profitability, but creates a competitive headwind for the Kindle over the medium-term. We expect Amazon's gross margins on eBooks whose price is set by the publisher to be in the 20- 25% (of retail price) range versus 0% or negative previously, but it threatens Amazon's Kindle strategy of being a low-cost eReader. Bottom line, we believe today's move in shares is an overreaction to the publisher news, and the Amazon story is about much more than digital books." Maintains Overweight rating, $172 price target.
- Collins Stewart: "In our view, the entire saga around the launch of iPad and the recent Macmillan issue highlights the changing competitive landscape for Kindle. Due to more competition for Kindle, publishers' bargaining power has started to go up (we have been highlighting increasing competition for Kindle as a concern since Aug '09 in our Kindle Ecosystem Monthly reports). We do not think the Macmillan development means material margin pressure for Amazon but given that Amazon has used eBook pricing (at $9.99) as part of its winning strategy to create entry barriers (backed by its operational excellence and scale), less choices with publishers indeed raise the competitive risk profile for Kindle. That also means that Amazon vs. Apple becomes more of a question which device wins the game as Amazon's platform may lose its pricing advantage (see our Kindle vs. iPad comparison note from Jan 28th). The stock was down more than 8% in mid-day trading and reached levels of $114. Though at current levels Amazon looks attractive we remain somewhat concerned on increasing competitive risk profile..." Reitereate Hold rating.
- Goldman Sachs: "The direct financial impact of raising prices from $10 to $12-$15 should be to boost Amazon's margins on front list e-books...;The strategic implications...slower uptake of e-books and e-reader... Amazon losing control of e-book pricing, and thus of one competitive advantage versus Apple...; Macmillan's participation in Apple’s iBooks bookstore carries risks for publishers: Apple could move to a central role in e-book retailing, without feeling the dependence on books as a stand-alone business that Amazon still does." Maintains Buy rating, $160 6-month price target.
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