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Amazon's New Textbook Rental

Zacks Equity Research

Amazon.com, Inc. (AMZN) recently launched a textbook rental service for college students. While it has been renting textbooks on Kindle since last summer, Amazon is broadening the market with the addition of printed textbooks as well.

The rental service is a bit more restricted than the one available on the Kindle platform. For one, printed textbooks are available for a single semester (130 days) compared to 30-360 days for Kindle-rented textbooks. The selection is also much smaller (several thousands compared to tens of thousands available on the Kindle platform). However, Amazon’s renting text books would be a challenge for textbook rental startups like Chegg and BookRenter.

Amazon is essentially milking the student segment by offering free two-day shipping if students opt for a Prime membership by signing up as “Amazon Student.” The membership would also entitle them to free two-day shipping on other items, such as books, backpacks, electronics, video games, shoes and other college essentials for six months plus 50% off on Prime membership charges up to four years.

The idea is obviously to get them hooked on to Prime at an early stage, so they ultimately stick with Amazon for its host of physical and digital offerings, even as competition intensifies from rivals such as Barnes & Noble (BKS), Apple Inc (AAPL) and eBay Inc (EBAY). The strategy appears to be solid, especially at a time like this, when the sluggish economy is encouraging thrift.

In the second quarter or 2012, Amazon reported revenue of $12.83 billion, down 2.7% sequentially and up 29.5% from the year-ago quarter. This was better than the guidance for the quarter of $11.9-13.3 billion (down 4.4% sequentially, or up 27.1% year over year at the mid-point) and in-line with consensus expectations. Year-over-year revenue growth was 32%, excluding an unfavorable currency impact.

Amazon is one of the leading players in the extremely fast-growing retail ecommerce market. The strong growth prospects are making the market more competitive by the day.

Currently, Amazon has a Zacks #3 Rank, which implies a Hold rating in the near term.

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