Analysts Crunch The Numbers On Kindle Sales; Is It The Next iPod?
This story was written by Rory Maher.
One of the great parlor games in new media is trying to guess how many Kindles are sold every yearin the absence of figures from Amazon (NSDQ: AMZN), analyst and media speculation has ranged from luke-warm sales to off-the-charts success. Now, two analysts are trying to fill that void with some new number crunching.
Mark Mahaney from Citigroup estimates about 500,000 Kindles have been sold since the e-reader was introduced. Here is how he gets there:
A recent Sprint (NYSE: S) 10Q says that "Certain wholesale devices are activated on the network by our wholesale partners prior to selling the device to the end customer, which resulted in approximately 210,000 such additions being activated on our network during the third quarter 2008." Citigroup estimates the lion's share of these activations were Kindles.
Citigroup also estimates about 100,000 Kindles were sold in each of previous two quarters this year (Q108 and Q208).
Kindle inventory was sold out in November, which accounts for the final 100,000.
The other analyst, Justin Post from Merrill Lynch, uses a less-creative approach to get to his estimate of 374,000 Kindles sold to date. In a research report released the same day as Citigroup, Mr. Post writes: "Using the $5mn q/q increase in L.T. [long-term] unearned revenues and q/q changes in unearned amortization, we estimate total Kindle sales at 142K in 3Q and at 374K life-to-date."
Post doesn't go into detail about the methodology that led him to his 142,000 Q308 figure, so the breakdown of how much of the $5 million in unearned revenue is attributable to Kindle products versus other Amazon products is unclear.
Regardless of which analyst is closer to the truth (Citigroup's analysis is more straightforward and provides a clear explanation of the datapoints that led to the conclusion) it's likely too early to tell if the Kindle is the next iPod, as both analysts suggest. For example:
The iPod was introduced in 2001, which is very different period than 2009 when it comes to consumer electronics, not to mention consumption of digital media. So just because initial sales are comparable, or even greater for the Kindle, doesn't mean that you can draw any longer-term grand conclusions.
The number of people who read every day is likely much less than the number of people who listen to music daily (25% of all people do not read books at all
can the same be said about music?). As a result, early adopters have likely driven early sales, and sales growth will probably come down to earth once the device has reached the masses.
Still, whether or not initial sales are 374,000 or 500,000, it appears the Kindle is well on its way to obtaining some form of mass-market status.
By Rory Maher