Online retailer Amazon.com Inc's testing Wall Street's patience by repeatedly touting the success of its Kindle electronic reader without providing specific sales figures.
In one press release after another in recent months, Amazon has talked up the Kindle's best-seller status across all product categories. The statements have helped propel a share price already on a breathtaking rise due to Amazon's growing dominance in Web retail.
On the day after Christmas, the retailer said the Kindle was the most-purchased gift in its history and sales of its electronic books surpassed physical book sales on the holiday itself. Previously, Amazon said the device had its best monthly sales ever in December, with only half of the month gone by at that point.
In neither of these most recent examples did Amazon say how many Kindles or e-books were sold, nor by how much sales rose. In an e-mail message, a spokeswoman said Amazon does not disclose unit sales as a matter of company policy.
But investor patience with the lack of details has begun to wear thin, particularly as Amazon shares hit an all-time high in early December on expectations it will be one of the biggest winners in overall sales growth this holiday season.
That benefit of the doubt could be further tested in 2010 as more e-readers enter the market and challenge the Kindle.
As long as Amazon continues to have the right margins and the right profit numbers at the end of every quarter, they can probably get away with that, said James McQuivey, an analyst at Forrester Research.
But if the Kindle's streak goes cold and Amazon continues to keep investors in the dark, they could turn on the stock.
You may suffer a 10 to 15 to 20 percent correction because the uncertainty factor would be so high, McQuivey said. It ensures that if there is bad news, people imagine the worst.
Analysts at Bank of America Merrill Lynch also see Amazon treading a fine line with fuzzy statements on the Kindle.
We continue to be frustrated with the limited unit data points from Amazon in their numerous Kindle press releases, the analysts wrote in a note cited by The Wall Street Journal this week. These press releases seem aimed at generating press buzz, not providing the most relevant information to the street or the press.
A RICH VALUATION
Forrester estimates that the Kindle, which was launched in 2007, has a U.S. market share of about 55 percent, ahead of devices from Sony Corp (6758.T) and Barnes & Noble Inc's (BKS.N) recently launched Nook. It says 2.5 million Kindles have been sold to date, based on consumer surveys.
Investment firm Cowen & Co. expects Amazon to sell 500,000 of the devices in its holiday quarter alone.
In 2010, Forrester anticipates consumers to buy another 6 million e-readers and the field to become more crowded. Apple Inc (AAPL.O) is expected to unveil a tablet in 2010 that would have e-reader functions.
Amazon shares have nearly tripled since hitting a yearly low in January. That performance has attracted closer analyst scrutiny on fears the stock could be overvalued.
Amazon's shares are valued at about 72 times estimated earnings per share in 2009, or 53 times 2010 EPS, according to Thomson Reuters data. Google (GOOG.O) is trading at 27 times 2010 EPS. Apple shares are valued at 27 times estimated EPS for its fiscal 2010.
From a legal standpoint, Amazon is not obligated to disclose sales figures on the Kindle until it accounts for a material portion of its business, a securities lawyer said.
You have to look at it in context and how large the company is as a whole, said Stephen Fox, a partner at Herrick, Feinstein LLP.
At this point, analysts estimate the Kindle will account for less than 2 percent of Amazon's expected $8.9 billion in sales for the current holiday quarter.
So unless investors complain to the U.S. Securities and Exchange Commission or there are irregular stock movements, regulators are unlikely to do much, Fox said.
A QUESTION OF POTENTIAL
Some veteran industry watchers see the Kindle as a sideshow to the broader Amazon story as it becomes a greater source of consumer goods from electronics to baby food.
If investors are buying Amazon because of Kindle they're making a mistake, said Charles Wolf, an analyst at Needham & Co. It's not inconsequential, but it's just not a game changer for Amazon.
That view could change. Some 25 percent of Amazon's revenue comes from its original business selling books online. As readers adapt to digital book formats, the Kindle and its e-book store will play a growing role in Amazon's future.
If they don't beat everyone else to the e-book game, they will lose revenue, McQuivey said. Forrester found people who buy e-readers have increased book purchases 50 percent.
On the disclosure level, McQuivey pointed to Apple, which gave sales data for its iPod and iPhone early on.
Apple didn't have a music business they needed to preserve, McQuivey said. They needed to convince the music industry that they had a viable platform.
Amazon's fight to protect its hold on the fast-growing e-books market gives it more reason to keep specific data out of the hands of competitors.
If you, as an investor, invest in Amazon, you go in knowing that you're not going to get a significant amount of disclosure, said James Friedland, a Cowen & Co analyst.
We would all love it (more information) -- they won't do it. They'll just keep deflecting questions.