What Investors Are Saying About Amazon's Fire TV -- And Amazon

Apr 4 2014, 1:58pm CDT | by

What Investors Are Saying About Amazon's Fire TV -- And Amazon
Photo Credit: Forbes Apple

Making a big splashy announcement about a set-top box can get you lots of ink or maybe page views on the Internet.

But investors get to have their say, too, and the stock’s performance Wednesday, Thursday and, especially Friday, suggests they weren’t impressed that much by Amazon.com's new Fire TV set-top box.

The shares fell slightly on Wednesday after the $99 device was introduced in New York to pretty much positive reviews, at least in terms of the product’s features. The box lets you watch videos and play games.

On Thursday, the shares stumbled an additional $8.29, or 2.4% to $333.67. On Friday, the slump turned into more of a rout: The shares fell to as low as $315.61 before rallying back $321.74, down were down 3.7%.

The stock’s recent chart suggests strongly that a lot of investors are saying “Show me something that puts money in my pocket.”

The shares are down more than 19% this year alone and down more than 21% since reaching an intraday peak of $408.06 on Jan. 27.

The poor performance comes even as the Standard & Poor’s 500 Index is holding on to a 1.3% gain for the year. The Nasdaq Composite Index is off about 1%.

The slump has cut the value of CEO Jeff Bezos’ stake in the company from $35.8 billion to $27.8 billion. To put that loss in perspective, it’s 30 times the $250 million he spent buying the Washington Post.

Despite the slump into near-bear-market territory, Amazon shares are still selling at 538 times trailing 12-month earnings and 55 times projected 12-month earnings.

For the last few years, Amazon.com has been given a pass by investors, awed by the company’s fantastic revenue growth (an average 30.4% a year since 2004), and the enormous investments Amazon made in computerized warehousing infrastructure so that 24-hour delivery is the norm rather than the dream. The stock was up 44% in 2013 and 58% in 2013.

This year, skepticism has entered the Amazon story. Investors aren’t sure that Amazon’s strategy of plowing money into things where the payoff may take some time will always work and is worth paying up for.

The Fire TV is a case in point. While it has a built-in audience in the range of the 20-million or so subscribers to Amazon’s Amazon Prime service, it still comes to the market late. Yes, it streams in video from Hulu, Netflix and other services. But it also has to compete against Netflix, Apple Inc.’s Apple TV, Roku’s streaming service and Google’s Chromecast and other products.

And there’s the thorny problem of finding enough bandwidth on the Internet to be able to stream videos to users without interruption. Netflix, you will remember, can generate as much as 30% of all Internet in prime-time viewing hours all by itself.

So, making Fire TV a big contributor to profits will take time, and you’d be excused if you don’t see it as a huge revenue contributor.

To be sure, not all of Amazon’s sell-off is investor skepticism about the company specifically. Big-cap tech stocks have been hit this week and were selling off on Friday. Biotechnology stocks have been slapped around. The SPDR S&P Biotech exchange-traded fund was down nearly 5% Friday and 4% for the week. The ETF fell 7% in March.

Still, it may not be too much of a stretch to suggest that Amazon is starting to look like Apple, whose shares peaked at more than $700 in September 2012 and are now trading 24% below that level./>/>

Investors seem to want more from the company and aren’t sure what to expect. So, they seem prepared to walk away.

 
 

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