Amazon Kindle
Amazon Kindle Amazon

Caris & Co. said Kindle is a multi-billion dollar opportunity for Inc. (NASDAQ: AMZN). Kindle can generate revenue in excess of $5.48 billion and $1.20 billion in gross profit in 2011, while the brokerage expects at least $8.64 billion in revenue and $2.11 billion in gross profit by 2012.

The brokerage said Kindle remains the most compelling eBook device and a material contributor to Amazon's non-core business growth.

Since mid-2009, competition in the eBook market has been intensifying but, in our view, Kindle remains the most compelling eBook device and a material contributor to Amazon's non-core business growth, said Sandeep Aggarwal, an analyst at Caris.

Book titles reached 978,588 in June 2011, increasing by 34,000 over May 2011 (4 percent month-over-month increase) and by more than 770,000 since Kindle’s first anniversary.

eBooks with embedded audio and video clips decreased by 106 in June 2011 (their 12th month in Kindle Store) and their number reached 494. Magazine titles increased by 17 to 111 while newspaper titles increased by 3 and reached 170. U.S. newspapers’ count was at 82 and international at 88.

Blogs increased to 13,686 in June (up 5 percent month-over-month) from 12,982 in May. Kindle accessories remained largely flat sequentially, increasing by only 15 to 1,335.

At the same time, the U.K. Kindle Store offered the Kindle Wi-Fi and 3G models for 111 British Pounds and 152 British Pounds, respectively, as well as 735,000 books, 147 newspapers, 86 magazines, 9,200 blogs, and 134 accessories. Launched on April 21, the Kindle Store in Germany offered the Kindle Wi-Fi and 3G models for 139 euros and 189 euros, respectively, as well as 763,000 books, 9 newspapers, 7 magazines, and 66 accessories.

Just six weeks after the introduction of its $114 Kindle with Special Offers on April 11, Amazon revealed yet another member of its Kindle family of eBook readers.

On May 24, the company introduced Kindle 3G with Special Offers that retails for $164. The new reader is essentially the same Kindle 3G device but for a $25 discount customers agree to receive special offers (basically advertising) in the form of sponsored screensavers and display ads showing on the bottom of the home screen.

Currently, all five Kindle models are available for delivery but there is a limit of up to 3 readers per order for both versions with Special Offers. Customers can order a used or refurbished Kindle Wi-Fi, 3G, or DX reader as well.

On May 19, Amazon announced that its $114 Kindle with Special Offers has become the best-selling member of the Kindle family in the U.S. and that, less than four years after introducing eBooks, it is selling more Kindle books than all print books (hardcover and paperback) combined.

With the release in early January of Amazon's free Kindle app for mobile devices running on the new Windows Phone 7 operating system, the company now has presence on all major computing platforms and portable devices including PC, Mac, iPhone, iPad, iPod touch, BlackBerry, Android, and Windows Phone 7.

Still, Amazon is working on a Kindle app for the BlackBerry PlayBook tablet computer (released on April 19, 2011) and plans to launch this summer a free Kindle app for webOS devices and specifically for the HP TouchPad tablet, Aggarwal said.

Aggarwal said May offered several events that impacted the competitive landscape for eBooks. In early May, popular media reported that Simon & Schuster, Penguin Group and Hachette Book Group have joined forces to launch a new website to sell physical and digital titles directly to consumers.

On May 23, Kobo revealed Kobo Touch – its first touch-screen eBook reader with a 6-inch E-Ink Pearl screen, Wi-Fi connectivity, and 1GB of installed memory (expandable to 32GB) that can be pre-ordered for $130. Kobo also reduced the price of its original eBook reader to $99.99.

On May 24, Barnes & Noble introduced its new Nook eBook reader. It features a 6-inch E-Ink Pearl touch-screen, Wi-Fi connectivity, 2GB of installed memory (expandable to 32GB), and on-screen keyboard. The reader retails for $139 and claims to have the longest battery life of all eBook readers.

On June 1, a federal judge decided to give Google Inc. and the Authors Guild and the Association of American Publishers more time to reach a new settlement. Lastly, on June 2, a judge gave Borders Group extra time until October to file a reorganization plan.

We think that Kindle not only helps to remove multiple costs and inefficiencies in the traditional book printing and distribution business (e.g. print and fulfillment costs, back order risk, and inventory management) but also increases propensity to buy books/content and other adjacent products due to convenience and 24/7 access, said Aggarwal.

Aggarwal said Amazon continues to not disclose business metrics for its Kindle franchise and only anecdotal evidence and irregular press releases suggest the magnitude of the Kindle business. Public data for Kindle book or other content sales are scarce too.

According to the latest press release on May 19, the $114 Kindle with Special Offers has become in just five weeks the best-selling member of the Kindle family in the U.S.

In addition to that, the company announced that since April 1 it has sold 105 Kindle books for every 100 print books (hardcover and paperback combined). This includes sales of print books where there is no Kindle edition and excludes free Kindle books (which if included would make these numbers even higher).

Two additional data points reported by Amazon on May 19 showed that the company sold more than 3 times as many eBooks in 2011 year-to-date as it did during the same period of 2010 and that its UK Kindle Store (launched less than a year ago) is selling more Kindle books than hardcover books with the ratio exceeding 2 to 1 since April 1, 2011.

In Aggarwal's view, as the Kindle ecosystem expands, Kindle device users will not only continue buying more eBooks but also subscriptions, accessories, hardware warranties, and eventually use Kindle’s wireless and computing capabilities for other data and content consumption (e.g. pictures, music, videos, email, etc.).

Aggarwal said now that the Kindle App is available on all major computing platforms and portable devices, Amazon's eBook market has expanded beyond just the Kindle eBook reader.

Below we present our updated revenue and gross margin assumptions and long-term forecast for Kindle, said Aggarwal.

Amazon stock closed Thursday's regular trading up 0.87 percent at $189.68 on the NASDAQ Stock Market, while in after-hours the stock further rose 0.05 percent to $189.77.