Amazon’s ‘Cloud Drive’ Goes After Digital Music, Mobile Storage
Amazon (NASDAQ:AMZN) recently unveiled its Cloud Drive services that allows people to store digital music and access them from computers and/or Android devices. We believe that this will offer some upside to our estimates for Amazon’s stock through increased revenues from its cloud and other web services as well as increase revenues for Amazon’s music store. Amazon offers web services like cloud computing and cloud storage competing with bigger players like Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT) and Salesforce.com (NYSE:CRM) in addition to being a major online retailer of books, DVDs, music, games, apparel and other merchandise.
Cloud and other web services together account for only around 2.5% of Amazon’s stock by our estimates and so we don’t expect this new launch to drive the stock any time soon; however it’s worth monitoring as Amazon’s moves could help reshape the existing landscape for cloud computing services. The company’s revenues from this business have grown steadily over the years, and we expect the growth to pick up driven by the increased outsourcing of web services and growing demand for online media and web 2.0.
We currently have a Trefis price estimate of $181 for Amazon’s stock, which is inline with the market price.
- U.S. Digital Advertising Landscape And Key Players (Part 2)
- U.S. Digital Advertising Landscape And Key Players (Part 1)
- With AOL In The Bag, What’s Next For Verizon?
- AOL To Be Acquired for $4.4 billion By Verizon
- AOL Earnings: Third Party Ads Boost Revenues Yet Again
- AOL’s ‘ONE by AOL’ To Boost Its Programmatic Ad Platform
Promotions to Drive Adoption
An increasing market share of Android phones, the proliferation of tablets and the growing mobility of business and communication is driving the need for remote storage services for files and personal information that can be securely accessed from anywhere. Amazon’s Cloud Drive service provides these capabilities and is ahead of other tech giants such as Apple and Google that have been working on developing other similar services.
Amazon is offering 5 gigabytes (GB) storage to anyone, which equivalent to about 1,000 songs. For customers who buy any MP3, they will are eligible to receive 20 GBs free and have up to one year to redeem this. Otherwise, 20 GBs cost $20 a year. [1] We believe that this will help in early adoption of Cloud Drive services and help get users accustomed to making purchases and using Amazon’s storage services.
Boost to Amazon’s Music Store
Apple’s iTunes has dominated the music marketplace for some time, but Apple users still don’t have the ability to access their purchases from multiple devices. (Users can however register a limited set of devices to connect to one Apple ID, but songs, movies and media cannot be downloaded on multiple devices.) Amazon Cloud Drive services offers this flexibility by accessing media remotely, and this could help take some share away from iTunes’ dominance and increase its own music store’s sales of online books, DVDs & music.
Moderate Upside to Amazon’s Stock Price in Our Scenario
In a scenario where Amazon’s share of international and U.S. online books, DVDs & music sales could grow 1 percentage point (ppt) faster than our current growth estimates over the next 3 years as well as grow its cloud and other web services revenue by an additional 10 basis points every year, we would see just under 5% upside to our current price estimate. Additionally, if Amazon and other competitors can take market share away from iTunes’ dominance, we could see this accelerate growth accelerate in coming years.
You can examine a variety of scenarios for Amazon’s outlook by dragging the trend lines in the interactive charts above.
See our complete analysis for Amazon’s stock.
Notes: