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Amazon stock: Look out below?

June 19, 2014: 1:53 PM ET
Amazon's stock has fallen faster than a package from a drone this year. Will the new Fire Phone change that?

Amazon's stock has fallen faster than a package from a drone this year. Will the new Fire Phone change that?

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

Amazon was the anti-Apple ... for one day at least. Amazon unveiled a new product on Wednesday that wasn't a surprise to anybody, and the stock went up!

But Amazon gave up much of those gains Thursday and it has been a lousy investment this year. It's down nearly 18% in 2014 and is the fifth-worst performer in the CNNMoney Tech 30 index.

Now that the company has made the decision to enter the highly competitive smartphone market with the Fire Phone, is CEO Jeff Bezos finally biting off more than he can chew? (Mr. Bezos, please don't send your army of drones and Kiva robots after me! Or a mob of angry Washington Post reporters. Or Gary Busey! Scary!)

The main case against Amazon (AMZN) is that the stock is overvalued. Shares trade at more than 300 times 2014 earnings estimates and 100 times profit forecasts for 2015.

But that argument is not new. Can a stock really be overvalued for more than 15 years and not completely crash?

The other knock on Amazon is that Bezos cares more about revenue and market share than profits. Bezos has basically been Rhett Butler and, frankly my dear, not given a damn about Wall Street's quarter-by-quarter mentality.

Yet Amazon has, throughout its history, made bold decisions to spend aggressively on programs that hurt profits for awhile but eventually paid off handsomely.

That was the case with Prime. (Free shipping for a flat annual fee? That will kill margins!) It was also the case with Kindle. (An e-reader/tablet? Low-margin hardware!) Huge investments in its cloud computing business Amazon Web Services? (That will destroy margins!)

Related: 5 gadgets that changed Amazon

But time and time again, Bezos has proved the doubters wrong. Heck, the company's strategy is so successful that even Vee Parker, the (spoiler alert!) new villain in season 2 of Netflix's (NFLX) "Orange is the New Black," spoke admirably of it.

"Is it cold for Amazon to underprice books just to capture market share?" she said. (Tangent alert. I am both a Netflix  subscriber and Amazon Prime subscriber. When Amazon has an original show halfway as good as OITNB and "House of Cards", let me know. Sorry. "Alpha House" isn't cutting it.)

And while the Nasdaq still hasn't fully recovered from the dot-com crash more than 14 years ago, Amazon is well above where it was trading in March 2000.

Still, Amazon has lost momentum this year. The concerns about increased competition from the likes of Netflix and Apple (AAPL) are legitimate.

You also have to wonder if some of the bad PR the company is getting for its feud with book publisher Hachette could eventually impact sales.

Related: 8 books Amazon is making it hard for you to buy

Stephen Colbert is a formidable opponent. I wouldn't want to be on the bad side of J.K. Rowling either.

Disclosure: Amazon is also in a bit of a pricing tiff with Warner Bros., which is owned by CNNMoney parent company Time Warner (TWX).

I will admit it was annoying that I was unable to pre-order the Blu-ray of "The Lego Movie" as a result of this spat. But I did successfully purchase it when it was released Tuesday and it appears to be on its way to my apartment. So everything is, once again, awesome. Although getting it delivered by a Lego drone would be truly awesome.

Nonetheless, many Wall Street analysts are still pretty bullish.

Jefferies analysts Brian Pitz and Brian Fitzgerald (they share an email address with the cutesy nickname Pitz-Fitz ... seriously) raved about the Fire Phone. They wrote that "the ultimate goal is to create the best possible user experience and to tie consumers tighter to Amazon's digital ecosystem." They think it will increase media consumption and boost revenues.

That makes sense. Yes, it's hard to imagine how Amazon really can make a big dent in the smartphone market given that it's late to the game. The 3-D screen and other cool features may not be enough of a selling point to get people to give up their iPhone or Galaxy.

Related: Fire Phone is cool, but not compelling

But Amazon doesn't have to rule the market. Heck, it probably doesn't even need to make money off the devices themselves. Amazon can justify the Fire Phone being a loss leader if it leads to higher demand for media content ... be that e-books, movie downloads or streaming music.

Along those lines, Cantor Fitzgerald (if only Pitz-Fitz worked there! Pitz-Fitz squared!) analyst Youssef Squali wrote that the Fire Phone "should bolster Amazon's mobile offering and allow the company to pursue increasingly mobile audiences more effectively." Squali added that the Fire Phone could allow the company to do a better job of retaining its Amazon Prime members, which he estimates to be at around 30 million.

Squali has a price target of $425 on Amazon, which is nearly 30% higher than the current stock price. The Pitz-Fitz duo is even more optimistic. Their target is $450.

So if you still want to bet against Amazon, you do so at your own peril. There is a long list of companies that are now dead or in a serious world of hurt largely due to Amazon. Borders and Circuit City are in the retail morgue. Barnes & Noble (BKS), Best Buy (BBY) and Staples (SPLS) are in trouble.

Bezos often has had the last (maniacal) laugh. He may do so again. Kudos to GIFSoup user Sweddr for making this from a clip of Bezos on CNN's The Lead show last year.

jeff-bezos-sweddr-o

Reader Comment of the Week! I love sports. So if you combine two sports references into one tweet ... and include one of those awesome Twitter (TWTR) hashflags ... then you deserve RCOTW!

Hilarious, Staci. At least the Heat made it to the Finals though.

Anyway, will the USA squad be the San Antonio Spurs of fĂștbol? Let's hope so. No offense to fans of Cristiano Ronaldo and my readers on the Iberian Peninsula, but I'd love to see Portugal join Spain in the shocking first-round exit club!

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About This Author
Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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