AMZN stockholders should be awfully tired of Jeff Bezos & Co. chasing hardware fads with no real impact on the bottom line.
In fact, Amazon recently laid off “dozens of engineers” related to its ill-fated Fire Phone, according to a Wall Street Journal report, proving the hardware challenges Amazon faces.
Latest Moves from AMZN Stock — Forethought or Folly?
Specific metrics for Kindle Fire tablet sales are shrouded in the typical mystery of Amazon, so there’s no way to know for sure how many devices the company is moving and to what end. But Bezos confirmed a few years back that the AMZN gadgets were sold “at cost” — and considering the latest line of tablets includes three offerings under $100, it’s difficult to believe the margins have gotten better.
Of course, there are the secondary and tertiary benefits of getting Amazon tablets out there.
Consumers will be more likely to buy books or movies from AMZN, for one. For another, there are perks associated with Amazon’s annual Prime subscription service, such as a lending library for Kindle e-books, that may help prompt memberships.
But that’s the long game — and investors in AMZN stock have largely been bullish lately because of the signs of immediate-term profits and an improving earnings outlook.
In fact, the cuts to Amazon’s Fire Phone unit seemed to mirror that reality. Whether it’s Cisco (CSCO) killing its Flip mini camcorder or Microsoft (MSFT) paring back Nokia-branded “feature phones,” tech investors are all too familiar with changes to hardware lineups based on poor reception, and Amazon stock seemed to be starting to wise up to the reality of its hardware challenges as well.
But this new, ambitious move to expand the Kindle line and go harder at set-top streaming with an updated Fire Stick and Fire TV box seems like chasing trends.
Consider the four Kindles AMZN just unveiled — there’s an extra-rugged kids model for nearly $100 with a replacement guarantee, a dirt-cheap 7-inch Fire for $50, an 8-inch tablet for $150 and a premium 10-inch model for $230.
I understand the need to go big and small, but why all the complexity on the low end? Why not just two tablets, especially considering how thin margins must be on those cheap gadgets? Just a bit more simplicity in the supply chain could help contain costs to support these efforts.
And as for the Fire TV line, Amazon has been trying to push into the streaming hardware biz with its $99 Fire TV set-top box and $39 Fire Stick dongle for a while … but competition is fierce from the likes of Apple (AAPL) with its Apple TV, Google (GOOG, GOOGL) with its Chromecast and privately held Roku with its similar devices.
And considering many new TVs are Wi-Fi-connected and allow for streaming directly, why enter this crowded space when past AMZN hardware hasn’t been profitable at all?
After the death of the Fire Phone, I had hoped the time, energy and money AMZN stock was investing in hardware was on the decline. But between this ambitious line of products and other efforts like the Amazon Dash Button technology, that doesn’t seem to be the case.
The Kindle and Fire TV may serve as portals to e-books and Prime Instant Video, respectively, but Amazon stock investors will have to play the long game and be willing to suffer the gadgets as loss-leaders for a time.
Of course, that kind of mentality is what won AMZN stock plenty of critics a few years ago … so Bezos better tread carefully.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.
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