Amazon (AMZN) stock has been under pressure in 2014. Thanks to disappointing Amazon earnings in January, AMZN stock slid by double digits in short order and has continued to drift lower for a year-to-date loss of about 20%.
So naturally, some investors perked up Friday when The Wall Street Journal reported that an Amazon smartphone could be in the works.
This is not new news, exactly. InvestorPlace mused on the affects of a smartphone launch on AMZN stock and investor sentiment more than six months ago, for instance, and techies have long speculated that Amazon’s move into smaller consumer technology makes sense given its Kindle success.
And more recently, the launch of the Fire TV streaming gadget to compete with Google (GOOG) Chromecast and Apple TV from Apple (AAPL), among others, seems to make it clear that Amazon and founder/CEO Jeff Bezos are not afraid of taking the fight to the big guys.
But the big question doesn’t seem to be whether the device exists … but rather, will the long-rumored Amazon smartphone actually be a net positive for AMZN stock?
The short answer is “no.”
AMZN Stock Under Pressure to Post Profits
I know the narrative behind an Amazon smartphone is good. The device would put AMZN stock in a great position to tap into a hot device market, and theoretically access the profits and sales that are enjoyed by mobile titans like Samsung (SSNLF) and Apple (AAPL).
But the reality is far different than this pie-in-the-sky plan, particularly in the short term.
For starters, unnamed sources told the Journal that any smartphone will only be announced in June and not ship until late September. That’s just bad timing because it’s a little too late for back-to-school buzz, and a little too early to capitalize on holiday buzz right away. Plus, it also raises the possibility that it’ll come out right against a new iPhone, based on previous releases.
Beyond timing, there’s the very real problem of profitability for AMZN that is increasingly in focus … and frankly, nobody makes money on smartphones but Apple and Samsung.
Part of the reason that Amazon stock was hurt so much after January earnings was a minor revenue miss — something that might not matter to a typical stock, but sparked a deep selloff because investors have been waiting so long for actual profits to materialize. If they have been sacrificing profits for years in pursuit of never-ending market share and revenue growth, but AMZN stock is starting to show signs of plateauing growth … then what’s the point of giving Amazon a massive earnings multiple for profits that might never materialize?
Smartphones are a fool’s errand for a company in Amazon’s position. My favorite stat, though a little dated, is that Samsung and Apple collectively accounted for 109% of smartphone profits in Q3 2013. How is that possible? Well, because most other manufacturers actually lost money — which gave them a negative share of the profit pie.
That’s the environment Amazon is going to compete in.
Oh, and by the way, Amazon has managed to keep its Kindle relevant solely by competing with the Apple iPad and Google Android tablets on price.
Not an encouraging sign there, either.
Don’t Buy the Amazon Smartphone Hype
Sure, Amazon might be able to squeak out a decent share of the smartphone market. But it will never compete with AAPL stock when it comes to actual profits, will never compete with Google on market share — and, by the way, will never compete with Microsoft (MSFT) when it comes to a sense of desperation to figure out smartphones and mobile.
Amazon still is at its core an e-commerce company, but if MSFT can’t figure out Windows Phone or its mobile business, it is effectively giving up on any future growth in a post-PC age.
Smartphones are sexy and could fool some investors into buying AMZN stock on a whim, but there’s nothing of substance here even if the WSJ rumors are proven true in June.
After all, plenty of other tech stocks have made boneheaded moves based on the glimmering hope of smartphone profits … take Facebook (FB) and its ill-advised and forgettable Facebook Home OS as just one example.
Like I said, this smartphone rumor means nothing for AMZN stock. Don’t get sucked into the narrative, the Jeff Bezos hype or any other dreams of “disruption.”
Focus on Amazon’s sales, the current sentiment and its upcoming earnings report as a sign of the company’s true health and investment potential.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.