A Kindle Under Every Tree?

Barnes & Noble (BKS) reported today that their new eReader product has sold out of the entire supply for delivery before the holidays. This may be a positive sign for Barnes & Noble in the long run as demand appears to be quite strong, but it is clear that production limitations are restricting sales this holiday season. Yesterday, Sony (SNE) pushed back the shipping date for their Daily Edition Reader to between December 18th and January 8th. This puts Sony’s August promise to have the Reader available for holidays in serious jeopardy. All of this is great news for Amazon.com (AMZN) and their Kindle device, and these delays are just another reason why it is great to be the among the first products to market and letting the others play catch-up.

Amazon is ready to roll with Kindles in stock and ready for sale in the rapidly growing segment of consumer electronics. There is no doubt that the holiday shopping season is of massive importance to a consumer electronics product, and eReaders should be some of the hottest gifts on the market. It appears that this will be another step forward in their market leading position, and it is a lost opportunity for the competitors. It is too early to tell if BKS’s Nook or Sony’s Reader will be the equivalent to Microsoft’s (MSFT) Zune, but extending Amazon’s lead is troubling.

The Kindle has a year head start on its primary competitors, remember it was the Kindle that sold out prior to last year’s holidays. Sony has other models of readers available already, but the Daily Edition Reader is the closest competitor to the Kindle. It is also a bit surprising that a seasoned electronics manufacturer like Sony would be caught off guard by supply chain and manufacturing hold ups. For Barnes & Noble, it is much more understandable given their history as a retailer.

All the while, Amazon.com’s stock just continues to set new all-time highs which is truly amazing considering the stock was under $40 less than a year ago. Now trading at nearly $130, we are reiterating our Fairly Valued stance on the company. The Kindle has been a hit thus far and has the potential to dominate the digital book market the way the iPod has for digital music. We all know how that has worked out for Apple (AAPL) in the last decade. Not to mention, Amazon’s ecommerce site has never been hotter and should be a major destination for holiday shoppers.

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Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th- century Franciscan friar, William of Ockham. The principle states that a useful theory should utilize as few elements as possible, because efficiency is valuable. In this spirit, our goal is to make the investing environment as simple and understandable as possible, yet no simpler than is necessary.

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