Fire Phone Launch Fails to Stop Amazon Stock Price Bleeding

By Paul Ausick Published Jul 25, 1:40PM EDT

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When Amazon.com Inc. (NASDAQ: AMZN) reported second-quarter earnings after the markets closed Thursday, the first highlight it listed for its just-ended quarter was its introduction of the Fire phone. In fact, the first three highlights it listed were all related to the Fire phone. And it’s probably not a coincidence that the phone became available for shipment Friday, about five weeks following its launch.

The Fire phone is available exclusively from AT&T Inc. (NYSE: T) and a 32-GB version sells for $199 with a two-year contract or $27.09 per month on AT&T’s Next 18 plan, an installment payment plan that allows a device trade-in for a new phone after 18 months or full ownership of the phone after 24 months. Voice and data service are required and are not included in the price of the phone. Keeping the phone for 24 months brings the cost of the phone to $650, roughly equal to the price of an unlocked 16-GB iPhone 5s at the Apple Inc. (NASDAQ: AAPL) store. A 32-GB iPhone 5s retails for $749 at the Apple online store.

One estimate of the number of Fire phones that Amazon will sell in the second half of 2014 is 4 million. For comparison, Apple sold more than 35 million iPhones in the second quarter alone. In order to be a success for Amazon, the Fire phone does not have to outsell the iPhone, it only has to sell in decent numbers to the people who are heavy users of Amazon services.

The Firefly feature on the Fire phone lets a user put an item into a shopping basket with virtually no effort. That is where the money is for Amazon and that is why the company chose to release a high-end phone rather than a low-end one. It is entirely in keeping with Amazon’s customer-first strategy and is aimed squarely at Amazon’s best customers. That is who the free one-year extension to an Amazon Prime subscription is aimed at. How the strategy works will play out over the next several quarters, but investors shouldn’t look for any profit help from the Fire phone.

Amazon’s stock price got beaten up Friday, down about 10% in the early afternoon, at $323.77 in a 52-week range of $279.33 to $408.06.

ALSO READ: Why Amazon Is Down 20% This Year

About the Author Paul Ausick →

Paul Ausick has been writing for a673b.bigscoots-temp.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.

He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.