Report: Amazon may produce 2 smartphones
Like the Kindle, the devices would likely be geared towards driving sales of other products, while being sold at a net loss.
By Bret Kenwell
While reading TheStreet's senior technology correspondent Gary Krakow's piece regarding the possible new products -- yes, plural -- does sound rather interesting, you have to question the company's fundamentals a bit.
Reportedly, Amazon will produce a high-end and a low-end smartphone.
I'll let you read Krakow's article to get a better idea of the two, because that's not what I'm focusing on. Instead, I'm more concerned about the company's inability to produce a profit and am wondering how long investors are willing to wait for it to happen.
Don't get me wrong: I like Amazon. The stock has been a strong momentum play and despite its inflated price-to-earnings ratio, refuses to let pessimism get in the way. But at some point, you have to be hesitant of its ability to ever grow sizable profits. At least, profits that will allow the company to grow into its lofty valuation.
But since the company's fiscal second quarter of 2012, it has lost money in two quarters and had a gain of one cent per share in another quarter. Essentially, three of the past five quarters were profitless, with estimates expecting another loss in the upcoming quarter.
Revenue growth has been strong though, increasing from $24.5 billion in 2009 to $61.1 billion in 2012, nearly a 150% increase. But on the other hand, operating expenses have ballooned from $23.4 billion in 2009 to $60.4 billion in 2012, a similar 158% jump.
By now, we all know that Amazon is willing to lose money on its devices to gain market share and thus, drive sales of its other services, such as Amazon Prime, and products from its site.
This strategy is fine, but to what extent? For 99% of other stocks, this action wouldn't be tolerated for more than a quarter or two.
Sentiment for Amazon has been, and remains, quite bullish. Despite it seeming like more and more investors have started questioning CEO Jeff Bezos' plan, the stock continues to appreciate.
The gains are probably too much, as it's hard to see how Amazon is ever going to grow into a valuation that's this high, especially at the rate it continues increasing.
I'm not bearish on Amazon, but I'm definitely skeptical. I think any responsible investor should be. I was leery when the company said it would produce the Kindle at a loss, just to gain market share with the hope that it would substantially drive future sales.
While the rumored devices aren't being confirmed or denied, it wouldn't be illogical to assume these smartphones would have a similar plan to the Kindle -- not something that I'm overly thrilled about
As time goes on, I'm sure we'll learn more, just as I'm sure the stock will continue to rise.
At the time of publication the author had no position in any of the stocks mentioned.
More from TheStreet.com
- Cramer: What about oil from Canada?
- Why Pandora blows Apple’s iTunes Radio away
- Herb Greenberg: Potbelly IPO appetizing, but watch for indigestion
Copyright © 2014 Microsoft. All rights reserved.
Start investing in technology companies with help from financial writers and experts who know the industry best. Learn what to look for in a technology company to make the right investment decisions.
Forget Facebook: DataCoup allows users to sell their private data directly to businesses. But will consumers feel comfortable taking them up on the offer?
VIDEO ON MSN MONEY
MUST-SEE ON MSN
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'