Caris & Co. said Kindle is a multi-billion dollar opportunity for Amazon.com Inc. (NASDAQ: AMZN). The brokerage said Kindle remains the most compelling eBook device and a material contributor to Amazon's non-core business growth.

Caris said the depth and breadth of eBooks and other digital content, the installed base of Kindle devices, availability of Kindle Apps, and other parts of the Kindle ecosystem have expanded dramatically since the first device was launched in November 2007, strengthening the overall Kindle ecosystem.

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. In our view, in 2011 Kindle can generate revenue in excess of $5.42 billion and $1.21 billion in gross profit; by 2012 we expect at least $7.96 billion in total revenue and $2.00 billion in gross profit, said Sandeep Aggarwal, an analyst at Caris.

Book titles reached 945,026 in May 2011, increasing by 47,000 over April 2011 (5 percent month-over-month increase) and by more than 740,000 since Kindle’s first anniversary.

eBooks with embedded audio and video clips increased by 290 in May 2011 (their 11th month in Kindle Store) and their number reached 600. Magazine titles increased by 8 to 94 while newspaper titles increased by 3 and reached 167. U.S. newspapers’ count was at 81 and international at 86.

Blogs increased to 12,982 in May (up 4 percent month-over-month) from 12,511 in April. After two unusual jumps in November 2010 and January 2011, Kindle accessories decreased noticeably in April. In May, they remained largely flat sequentially, increasing by only 10 to 1,320.

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 681,000 books, 145 newspapers, 70 magazines, 7,700 blogs, and 72 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 706,000 books, 9 newspapers, 7 magazines, and 27 accessories.

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 data released with the company's fourth quarter earnings (on January 27), the third-generation Kindle has sold millions of units in the fourth quarter of 2010 and has become the best-selling product in Amazon's history. It remains the most wished for, the most gifted, and the product with most 5-star reviews on the website. In addition to that, Amazon continues to enjoy phenomenal growth in eBook sales.

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. Currently, our estimates for the $114 Kindle are loosely embedded in our Kindle Wi-Fi estimates but we will update those as we develop more confidence in the drivers of unit shipments for this form factor, said Aggarwal.

Amazon stock closed Monday's regular trading up 1.62 percent at $200.80 on the NASDAQ Stock Market, while in after-hours the stock further rose 0.19 percent to $201.19.

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