What’s Amazon Playing At?

With Amazon’s share price still based upon an incredibly optimistic multiple of 50, even after the stock has pulled back $36 from a high of $150, we’re starting to see a backlash. Stock analysts are worried that increased competition in e-books from Apple and Barnes & Noble will lead to a compression in the multiple.

Amazon has cut the price of the Kindle by nearly 30%, which makes analysts like Marianne Wolk of Susquehanna uncomfortable:

Wolk said she estimates that the e-book business–both devices and content –will comprise about 6% of Amazon’s total revenue by 2014. She believes that e-books and physical book sales account for between 8% to 13% of the company’s valuation, which leaves the shares exposed as competition mounts in the sector.

“With news flow likely to raise uncertainty over the next 12 months, it is likely to reduce the multiples attached to the contribution from the Kindle and importantly lower the valuation on physical books, which should see slowing growth as eBooks accelerate,” she wrote.

Jeff Bezos went to Fortune to counter-balance the negative noise with this interview, where he tries to explain that Kindle is more than just a device. It’s a broad attempt to own the e-reading space:

Our strategy with the ebookstore is ‘buy once, read everywhere.’ If you want to read on your iPhone, if you want to read on your BlackBerry. We want people to be able to read their books anywhere they want to read them. That’s the PC, that’s the Macintosh. It’s the iPad, it’s the iPhone. It’s the Kindle. So you have this whole multitude of devices and whatever’s most convenient for you at the moment.

If Amazon can expand its ownership of the electronic reading space, to cover both sides of the equation, it might actually be able to live up to those multiples in the long run.