AMZN Smartphone Will Send Amazon Stock Even Higher

by Alyssa Oursler | October 3, 2013 12:40 pm

Amazon (AMZN[1]) is already a tablet-making, cloud-serving, content-streaming e-commerce giant. But now, AMZN also wants to be a smartphone-maker, a la Apple (AAPL[2]).

News than AMZN is planning to make a smartphone has been circling for a few months, but details of the coming product were just released by TechCrunch[3]. The Cliff’s Notes version: Amazon is making a higher-end phone with a 3D eye-tracking interface, and then another simpler, budget-level phone.

This is just the kind of buzz Amazon stock needs to keep climbing higher.

AMZN Is All About Innovation

The new Amazon smartphone reportedly will boast a lot of eye-popping features — especially the more-expensive version sporting a 3D interface. The device’s four cameras track eye and head movement to give the impression of three dimensions, for starters.

But for AMZN as a company, the hottest feature just might be this one:

“Another feature said to be planned for the device, but not yet locked for release, is an image recognition feature that lets users take a shot of any real-world object and match it to an Amazon product for purchase.”

That’s a perfect storm for Amazon stock: Innovation, and the kind that can easily be seen impacting the bottom line.

As I wrote last week, Amazon stock[4] is not your normal stock — something that’s obvious if you glance at Amazon’s recent earnings or the jaw-dropping valuations at which AMZN shares continue to trade.

But that’s because AMZN (and Amazon investors, really) has generally cared more about innovation than about the bottom line. Amazon stock is up an impressive 27% year-to-date — nearly 10 percentage points more than the still-strong broader market — while the number of analysts rating the stock a “buy” or “strong buy” has marched upward in the past three months.

Yet AMZN has missed analyst expectations in three of the past four quarters, with earnings ending in the red half of the time.

Should I even bother to mention the fact that Amazon stock is trading for over 112 times estimated 2014 earnings?

Actually, probably not. Valuation is a non-starter for AMZN stock, which has lapped the S&P 500 several times over in the past month.

Instead, investors are interested the fact that Amazon stock is strong, AMZN continues to post strong sales growth thanks to new products and services, and that earnings are indeed expected to explode in coming years.

Not enough to bring Amazon’s P/E down to earth, but enough to make the whopping increases in R&D and Amazon’s stock price at least seem semi-justified.

AMZN finished 9 cents per share in the red for 2012, but is expected to earn around 87 cents per share this year, then a whopping $2.82 per share in 2014. That’s less than analysts were expecting for AMZN three months or so ago for the same time periods, but likely enough to keep Amazon stock investors smiling.

It’s difficult to say how these Amazon smartphones will affect any of the 2013 or 2014 figures, considering there’s no hard timeline for these development-phase phones, and considering that big-time R&D spending is par for the AMZN course.

But they should keep Amazon investors believing the best days are still ahead — and could be a strong addition to the booming AMZN product portfolio down the line.

As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.

Source URL: https://investorplace.com/2013/10/amzn-amazon-stock-smartphone/

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