Amazon: Potential Upside From Kindle Singles

NEW YORK (Trefis) -- Amazon (AMZN) announced that its Kindle Singles are for sale, a new format for the Kindle e-reader to sell shorter and cheaper e-Books. These books are roughly between 30 and 90 pages and run somewhere between the size of a magazine article and a full novel, but are lengthy enough to meet the marketing and distribution requirements. We believe this initiative could engage a lot more writers in producing shorter books and assist those who don't have a publisher to meet marketing and distribution requirements. Amazon competes with eBay (EBAY), Barnes & Noble (BKS), Overstock.com (OSTK) and Wal-Mart (WMT).

Cheaper prices for the shorter format e-Books compared to traditional e-Books could also mean that unit sales of e-Books from the Kindle store will likely go up. This move could help Amazon and benefit its stock. We currently have a 182 price estimate for Amazon.

Amazon primarily competes with Barnes and Noble and Apple ( AAPL) in the e-Books market. Kindle has an edge over Apple in terms of the availability of e-Books. Amazon is the market leader in the e-Books market and claims its market share to be around 70% to 80% , according to an interview conducted by CNET with Amazon vice president. Amazon's edge lies in its inventory of e-Books which is currently around 700,000, compared to Apple's, which is far less at slightly over 100,000. We believe that Amazon's move to allow shorter e-Books to be made available through its store could further increase the inventory of eBooks currently present and provide customers with a wider variety of options to choose from.

We currently estimate that Amazon will increase its share in the U.S. Online Media market (Books, DVDs and Music) from around 23% in 2011 to around 30% by the end of the Trefis forecast period.

In another article, we discussed how the e-Books segment could eventually become a billion dollar business for Amazon. The introduction of shorter format e-Books could create more upside to our estimate of e-Books revenues. Although these shorter format e-Books are expected to be priced lower than traditional e-Books, we expect revenues to be compensated through higher unit sales.

We believe that it could create greater revenue generating opportunities for Amazon in the long run. As a show of sensitivity, if Amazon captures 35% market share by the end of our forecast, this would add around just under 5% to our price estimate.

You can see the complete $107 Trefis Price estimate for Amazon's stock here.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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