Stock Selections To Profit From Ereaders
A disruptive technology is an innovation that takes a new approach to an existing product or process and reshapes its market. Steam engine displacing sails in ships and liquid crystal display displacing cathode ray tubes in TVs are examples of disruptive technologies. For investors, a disruptive technology offers opportunities to score spectacular returns and avoid serious losses.
Mark Bernstein, CEO of Xerox’s (XRX) Palo Alto Research Center has described eReader/eBook as the next disruptive technology. MediaIDEAS estimates sales of eReaders worldwide to reach 6 million units in 2010 from 1.1 million in 2008. The research firm projects worldwide eReader sales to increase to 115 million units by 2013 and 446 million units by 2020.
Like most disruptive technologies, this one comes with its share of ‘obstacles’ that need to be overcome for mass adoption. The list includes cost of devices, need to change reading habits, resolving content ownership rights, and adapting economic models.
Over time, the obstacles are likely to be overcome as the advantages provided by eBooks and eReaders are too compelling to ignore. Here are a few:
Advantages to Students
Costing less than print editions, eBooks can save students money. Students do not have to lug a heavy backpack filled with books. Students can also customize the content to suit their needs.
Advantages to Other Users
In a wired world, users can download oodles of digitized information anywhere. They can change the text size, bookmark an interesting story, and instantly share their ideas with friends on the other side of the globe. Access to references like encyclopedias or atlas can be done in a jiffy while reading.
Advantages to Publishers
eBooks cut inventory and distribution costs for publishers. They also eliminate the plague of used books. Publishers can distinguish themselves by adopting novel ways to present, sell, and distribute their information.
Growth as well as value investors can profit from this disruptive technology.
Shares of many eReader makers can whet the appetite of growth stock investors. Amazon (AMZN), Apple (AAPL), Sony (SNE), and Barnes & Noble (BKS) make eReaders. Among these companies, the real race will likely be between Amazon and Apple.
Companies that make eReader components offer another way to play the disruptive technology. Freescale Semiconductor that powers nearly 90% of eReaders fits this description. Freescale can be a viable investing option when private equity owners holding this firm decide to make the company public again.
Google (GOOG) stock is another alternative to play this disruptive technology. The Internet search giant has indexed over 10 million books in its electronic database. eBooks could be one of many alternatives available to Google to shore up growth.
Shares of eReader content providers including newspaper, book, and magazine publishers like New York Times (NYT), McGraw-Hill (MHP), John Wiley (JW/A), News Corp. (NWS), and CBS (CBS) are in line with a value investor’s preference.
Several top U. S. newspapers are now planning to offer daily editions on a variety of wireless eReaders next year. The New York Times for example already sells subscriptions to its newspaper on Amazon’s Kindle, Barnes & Noble’s Nook, and Sony’s Reader devices.
Academic publishers like McGraw-Hill and John Wiley are trying to extend their distribution beyond large eReader makers like Amazon and Apple. Both publishers have teamed up with Entourage Systems to deliver eBooks. Increasing intensity of competition among distributors can help publishers realize higher value for their content.
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