Get Fired Up for Amazon’s Bargain Stock!

Amazon (NASDAQ: AMZN ) is bringing the heat to the tablet market. The company
is projected to sell 5 million Kindle Fire tablets before the end of the year
impressive considering the device will only have been on sale for a month and a
half. However, that number looks more remarkable when you put it in context with
the entire tablet market. While Apple (NASDAQ: AAPL ) sold 11 million tablets
during this years third quarter, all other tablet makers combined sold just 1.2
million devices between January and October meaning the Kindle Fire might
single-handedly have created a competitive tablet market. Still, big time sales
or not, Amazon is taking a hit on every Kindle Fire sold. The device sells for
$199 but costs $201.70 to build and that loss doesnt count any licensing or
royalties Amazon pays on the tablets technology. Nor does it consider losses
taken on the companys free shipping offers. Amazon might burn a hole in its
pockets with the Kindle Fire even if its a success. And now's not the time for
Amazon to be burning cash, either. In the most recent quarter, AMZN net sales
came to $10.88 billion , good for year-over-year growth of 44%. However, various
costs including Kindle Fire development and manufacturing as well as new
licensing deals with Disney (NYSE: DIS ) and News Corp. (NASDAQ: NWS ) for
streaming video rights drove net income down. Way down. Net income was down 73%
from last year at just $63 million, or 14 cents per share , which missed Wall
Street expectations by a dime per share. Guidance for the fourth quarter wasnt
promising either, with a wide income forecast of between $250 million and a loss
of $200 million. AMZN shares tanked from a mid-October high above $240 to $195
by months end. As of Tuesday despite a positive Kindle Fire debut week, rumors
of a new Amazon smartphone and massive holiday sales projections Amazon was
trading just above $192. Thats still above its 52-week low of $160, but AMZN is
heading for its support level of just below $186. All signs say sell and sell
now . Before moving those shares, though, its important to think about Amazons
positioning going into 2012. Those millions of Kindle Fires represent more than
just strong brand reinforcement, but increased sales for literally all of
Amazons operations. That device is a handheld portal for Amazons core online
retail business. Each Kindle Fire comes with a free trial to the Amazon Prime
premium subscription service, which, for $79 per year, gives users access to
streaming video, an e-book lending library and discount shipping. Its estimated
that Amazons total annual revenue grows 1.5% for every 1 million new Amazon
Prime subscribers . Assuming the company sells 5 million Kindle Fires and just
20% of those new customers become paying Prime subscribers, thats a significant
bump in revenue. Even though net income projections for the fourth quarter dont
inspire confidence, sales projections should: Amazon expects Q4 sales of between
$16.5 billion and $18.7 billion , representing YOY growth between 27% and 44%,
respectively. That uptick in revenue should fuel the companys ambitions for a
while to come. Digitimes reported Tuesday that the company already is preparing
two new models of Kindle Fire 8.9-inch and 10.1-inch versions with enhanced
capabilities over the current 7-inch model for release in 2012. Amazon is
evolving in a powerful way. It is transforming from a retailer that relies on
other companys products, be they phones or PCs, to reach customers into one that
reaches customers directly through its own devices. The Fire is delivering on
the promise Amazons Kindle business showed when it started in 2007. Amazon
already leads online retail and is spending big to place a literal storefront in
consumers hands under the guise of entertainment. Its the reverse of what Apple
has done with its devices, selling desirable technology first as a gateway to
retail. With Kindle Fire on track to sell big in the near and long term, $192
ultimately might turn out to be a bargain for a piece of Amazon. As of this
writing, Anthony John Agnello did not hold a position in any of the
aforementioned stocks. Follow him on Twitter at