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Halftime Pt. 2: Will Amazon Beat Apple In E-Book Sales?

Thursday, 29 Jul 2010 | 1:46 PM ET

Apple may have a popular electronic reading device in the iPad, but a highly regarded analyst on Wall Street thinks it's Amazon.com that will sell the most electronic books thanks to its Kindle e-reader and Kindle application.

Compared to Apple, Amazon has a "much better" book store with greater selection and lower prices, says Jim Friedland of Cowen and Company. The Seattle-based company is the world's largest online retailer and 20% of its business comes from books. It started selling only hardcover copies, but it's been offering an array of digital ones too. Friedland says that shows Amazon wants to be at the forefront of book sales.

On Wednesday, the company announced two new versions of the Kindle—one is less expensive and the other is sleeker. Both devices are faster and seeking mass market appeal.

The company is speeding up the process of making the e-reader a commodity, says Friedland. As a result, pricing comes in and margins are compressed. He thinks they have been aggressive on pricing, so more consumers will buy the Kindle. But in the long run, Friedland says there is more opportunity is e-books than in the device itself.

Friedland admits he can't get a handle on the impact Kindle sales have on Amazon because the company won't release those numbers. But he notes that gross margins were up "nicely" this past quarter.

Amazon Announces Two New Kindles
The Fast Money traders discuss the e-reader market with Jim Friedland, of Cowen & Co.

Watch the video for Friedland's full comments.

What's the Trade?

Amazon might not release numbers regarding its Kindle device, but Patty Edwards of Storehouse Partners points out that sales of electronic books have surpassed hardcover copies. Plus, the Kindle application is available for the iPad or on one's desktop computer.

"I think they're doing exactly the right thing," Edwards says, adding that she's interested in the stock at current levels.

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CALL TO THE FLOOR: FOOD FOR THOUGHT

DineEquity , the Glendale, Calif.-based company that operates both Applebee's Neighborhood Grill and Bar and the International House of Pancakes restaurant chains, reported disappointing second quarter earnings results Thursday.

Call to the Floor: DineEquity
DineEquity, which owns IHOP and Applebee's, reported quarterly profit that missed expectations. Julia Stewart, CEO of DineEquity, discusses the results with CNBC.

While on the Fast Money Halftime Report, CEO Julia A. Stewart says a catalyst for the stock is paying down the $1.6 billion in debt incurred, at least in part, while acquiring Applebee's. But for the past several quarters, Stewart says DineEquity has been putting $30 to $40 million toward that debt. She sees an opportunity to pay it down over the "next couple years," but would not provide a timetable.

As the company strives to become debt-free, Stewart points out that it's also increasing free cash flow. Year to date, she says it now exceeds $41 million or $2.34 cash per share.

Shifting gears, Guy Adami of Drakon Capital asked Stewart what she attributes the stock's volatility to. She wouldn't comment on what prompts the movement on any given day, but says the company does communicate effectively to shareholders. By staying with their strategy, she thinks things will eventually play out.

Watch the video to see the full interview with Stewart.

What's the Trade?

"Cheap stock, good pancakes. I think it's interesting here," says Patty Edwards of Storehouse Partners.

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POLL OF THE DAY

Investors are eagerly awaiting second quarter gross domestic product data, which is set to be released Friday. In Thursday's Fast Money Poll of the Day, we want to know what you're expecting of the data? Cast your vote and we'll share the final results on Fast Money, seen at 5PM Eastern on CNBC.

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CALL THE CLOSE

Both Brian Kelly of Kanundrum Capital and Patty Edwards of Storehouse Partners are sellers of the market.

"I wouldn't be buying the market until we recapture the 1113 level," says Steve Grasso of Stuart Frankel.

"I've been burned so many times," says Guy Adami of Drakon Capital. "But it just feels like it's finally turned. It looks like it wants to go lower to me."

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Trader disclosure: On July 29, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Grasso owns (ASTM), (ABK), (BAC), (BA), (BGP), (C), (CSCO), (DYN), (JPM), (LPX), (MO), (NDAQ), (PFE), (PRST); Kelly owns (BP) puts

For Patty Edwards
Edwards owns (AMZN) for clients
Edwards owns (COP) for clients
Edwards owns (FCX) for clients
Edwards owns (HES) for clients
Edwards owns (NVDA) for clients
Edwards owns (XOM) for clients

For Steve Grasso:
Stuart Frankel & Co and it’s partners own (BAX)
Stuart Frankel & Co and it’s partners own (COG)
Stuart Frankel & Co and it’s partners own (CUBA)
Stuart Frankel & Co and it’s partners own (DHR)
Stuart Frankel & Co and it’s partners own (DYN)
Stuart Frankel & Co and it’s partners own (ESV)
Stuart Frankel & Co and it’s partners own (GERN)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (LEN)
Stuart Frankel & Co and it’s partners own (IP)
Stuart Frankel & Co and it’s partners own (MERC)
Stuart Frankel & Co and it’s partners own (NWS.A)
Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (PDE)
Stuart Frankel & Co and it’s partners own (PFE)
Stuart Frankel & Co and it’s partners own (PRST)
Stuart Frankel & Co and it’s partners own (RDC)
Stuart Frankel & Co and it’s partners own (SYMC)
Stuart Frankel & Co and it’s partners own (TBT)
Stuart Frankel & Co and it’s partners own (TLM)
Stuart Frankel & Co and it’s partners own (TRV)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co and it’s partners are short (QQQQ)
Stuart Frankel & Co and it’s partners are short (KEG)

For Brian Kelly
Accounts managed by Kanundrum Capital own (BAK)
Accounts managed by Kanundrum Capital own (VIV)
Accounts managed by Kanundrum Capital own (ORI)
Accounts managed by Kanundrum Capital own (TLT)
Accounts managed by Kanundrum Capital own Swiss Francs
Accounts managed by Kanundrum Capital are short (GLD)
Accounts managed by Kanundrum Capital are short (XME)
Accounts managed by Kanundrum Capital are short (SLX)
Accounts managed by Kanundrum Capital are short (RKH)
Accounts managed by Kanundrum Capital are short (XLK)

Jim Friedland
***No Disclosures***

CNBC.com with wires

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