Request Media Kit

Each Kindle Fire Makes Amazon $136 In Its Lifetime

Amazon’s reasonably-priced entry into the tablet market, the Kindle Fire, had a hot start selling an estimated 2 million units in its first two weeks. It later topped Amazon’s own lists of...
Each Kindle Fire Makes Amazon $136 In Its Lifetime
Written by Josh Wolford
  • Amazon’s reasonably-priced entry into the tablet market, the Kindle Fire, had a hot start selling an estimated 2 million units in its first two weeks. It later topped Amazon’s own lists of the top-selling devices during the holiday season.

    But after is was revealed that since the Kindle Fire costs just a little over $200 to make and sells for only $199, Amazon is actually losing a few bucks on each sale ($2 to $3), some began to wonder about the profitability of the tablet. Could Amazon’s long-term strategy of recouping these losses with e-book, app, and video sales turn the Fire into a highly profitable venture?

    According to RBC Capital analyst Ross Sandler, Amazon’s Kindle Fire is probably more profitable than you think.

    Here’s what he had to say in an research note:

    Our assumption is that AMZN could sell 3-4 million Kindle Fire units in Q4, and that those units are accretive to company-average operating margin within the first six months of ownership. Our analysis assigns a cumulative lifetime operating income per unit of $136, with a cumulative operating margin of over 20%. We believe these insights could ease some investor concerns around operating margin compression per Kindle Fire unit in 2012, which bodes well for Amazon shares.

    It appears as though the apps, e-books and even Amazon Prime membership sales will work generate a not-to-shabby profit for Amazon.

    Their research found that over 80% of Kindle Fire users used it to purchase e-books, and that’s one of the first things they do with the device. 58% of users reported buying at least three e-books within 15-60 days of purchase. If each user buys 5 e-books per quarter at $10 a piece (estimates), that would be $15 in e-book revenue each quarter.

    As far as apps go, 66% said that they had bought at least one app and 41% bought at least three. If you assume three app purchases each quarter, you can expect $9 in ad revenue per user per quarter.

    After you tack on things like videos, subscriptions, and the Amazon.com purchase every now and then (51% increased those purchases because of owning a Fire), you can see how the Kindle Fire is projected to be proiftable during its lifetime.

    Get the WebProNews newsletter
    delivered to your inbox

    Get the free daily newsletter read by decision makers

    Subscribe
    Advertise with Us

    Ready to get started?

    Get our media kit