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The Games Amazon Plays

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6629217_1f622b62bc_mWhat with its e-reader, the Kindle, and its cloud computing efforts, it can be easy to forget that Seattle-based Amazon (s AMZN) is really an e-tailer, one that has grown to become the online equivalent of super retailer Wal-Mart. But while we all know that Jeff Bezos’ company is a big seller of books (and with its agreement to buy Zappos, soon of shoes as well), did you know that it now accounts for roughly 5 percent of total video game sales in the U.S.? I didn’t!

Amazon’s sheer dominance of e-commerce was brought home to me this morning while reading an investor note by Ben Schachter, Internet analyst with Wall Street research group, Broadpoint.AmTech.

Video Games are an Important Driver for AMZN: We estimate that AMZN currently has ~5% U.S. market share in the category, representing about ~$900mil-$1bn according to our estimate of 2009 U.S. sales (~4% of AMZN’s 2009E total sales and 16%-18% of its estimated 2009 U.S. Media revenue).

Schachter says that the video game category is so big for Amazon that its slumping sales negatively impacted the company’s overall second-quarter performance. And he expects slower video game sales to continue to impact Amazon’s performance going forward.

Impact of Video Games on 2Q Results: We estimate that U.S video game weakness lowered AMZN’s U.S. Media revenue y/y growth by ~400-500 bps in 2Q’09 (or ~$40-$60mil) and increased the overall gross margin due to the change in mix by ~10-20 bps.

Potential Impact of Video Games on 2H Results: We expect the U.S. video game category will fall about 4-5% in 2H’09 (with software up 6-8% and hardware down 19% – assuming price cuts for both the Wii and PS3) and will contribute $625-$750mil to AMZN’s revenue. This should negatively impact AMZN’s y/y revenue growth by ~30 bps y/y in 2H (~100 bps for its U.S. Media segment), but we expect a negligible effect on the gross margin in 2H.

That investor note made me think: Maybe Amazon has become such a behemoth and e-commerce such a mainstream activity that one can safely view the company’s results as a proxy for consumer economic activity in the U.S.

From clothes to shoes to wireless phones to video games and electronics — Amazon sells them all and can accurately track the spending sentiment amongst its buyers. The company does publish some data occasionally, but what would be even cooler was if Amazon published its own “state of the economy” report every month, which would contain data that’s both more current and more accurate than some of what’s collected and published by governmental organizations.

Photo courtesy of Etech via Flickr

11 Responses to “The Games Amazon Plays”

  1. It’s interesting that you mention Amazon data as being potentially indicative of the video game market–it really would be great if they released it.

    What is worth noting is that eBay data is available, and although they are not an etailer, their sales volume is similar and those numbers can be descriptive of market trends–especially the secondary market. See:

    for some recent analysis of the eBay data with regards to video games.

  2. “Maybe Amazon has become such a behemoth and e-commerce such a mainstream activity that one can safely view the company’s results as a proxy for consumer economic activity in the U.S.”

    I think that there are still some significant jumps; first buying on Amazon generally requires a credit or debit card (I know you can pay by bank account, but that’s a bit trickier to set up, and I would think most transactions still use the cards), and browsing the site takes a computer with broadband (browsing on a dial up or slow DSL connection is painful, particularly as the pages have become more and more crowded). It also requires a certain amount of either experience or faith in e-commerce. I think that those three items still exclude a large portion of the population.

  3. sfmitch

    The 5% of total video game sales in the US sure doesn’t sound high and surely doesn’t surprise me. 5% is a pretty small number.

    Om – who did you think was selling all the video games?

    • I think Wal-Mart, Best Buy, Electronics Boutique, Game Stop are dedicated retailers of video games. So I wasn’t quite expecting Amazon to be such a big player. By the way if their wireless and other lines of business are any indicator, then Amazon will became a massive massive player in this category as well.

      • Oluseyi

        Electronis Boutique (EB Games since 2000) was taken over by Game Stop last September, so there are even fewer players in this space than you thought, though you did leave out Target.

  4. Isn’t this just an indication that adults who play video games and read a lot don’t ever want to leave the house? And that’s probably why the Zappos acquisition will likely a bust probably since those same folks won’t really need shoes? :)

  5. hmmm, witchful (wishful) thinking ,
    You better sharpen your ammunition on google and walmart tooo.

    After all walmart can tell whos buying what , when and where
    And google can tell whose searchin what , when and where ?

    Sure once these companies are too big , the sales data can be mined for predicting economy.