Amazon.com, Inc. (AMZN) has had a hard go of things in the hardware department lately.
About a month back, AMZN stock fired the staff that worked on the Fire Phone flop. And after announcing a line of updated Kindles and streaming video devices, Amazon has been on the defensive with investors about why it continues to pursue gadgets instead of focusing on turning its massive e-commerce business into a real moneymaker.
I mean, is it really a growth strategy to sell tablets for $50 — surely below cost — and bundle them in six-packs?
Now there’s further trouble on the device front, with massive U.K. bookseller Waterstones — think Barnes & Noble (BKS) in England — ceasing the sale of Kindle readers because of what they call “pitiful” sales.
Now, to be clear these Kindle readers are not the Fire tablets that AMZN stock just relaunched; the devices are literally good for just reading. But it’s pretty telling when Waterstones decides it’s more effective to use its store’s real estate for hardcovers and paperbacks instead of an e-reader from the company that basically made digital publishing mainstream.
As I wrote just a few weeks ago, AMZN stock investors should be awfully tired of CEO Jeff Bezos chasing hardware fads at Amazon with no real impact on the bottom line. The fact that it has kept selling dedicated Kindle readers at all — one premium version of which costs a staggering $220 — is a bit mind-boggling.
Sure, there may be some bibliophiles who want a decidated reading experience free from the distractions of email and Facebook (FB) … but that’s what REAL BOOKS ARE FOR!
The Kindle e-reader is a perfect example of a niche product that won’t make any money and persists simply because of the hubris over at AMZN. Sure, the company should be proud of its electronic publishing biz, but e-readers are yet another hardware distraction that needs to go.
I’m not saying Amazon needs to either be Apple Inc. (AAPL) with a wildly profitable iPhone or simply throw in the towel. I think there’s a lot of secondary benefit to a robust Kindle ecosystem as a way to support AMZN stock via media sales — both of books and of movies.
But you can’t ignore how thin the margins are for Amazon. Again, it’s selling tablets at just $50 — this, after Bezos confirmed a few years back that the Kindles were sold “at cost.” And you also can’t ignore competition from the likes of Apple TV and Google — or is it Alphabet (GOOG, GOOGL) now? — with its relaunched Chromecast.
Amazon needs to find its focus, and hardware simply isn’t it. The harsh words from across the pond regarding its e-reader business is just the latest wake-up call, and won’t be the last.
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 editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
