What 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.