5 Things Amazon Needs to Figure Out in 2015
The world's leading online retailer is feeling pretty mortal these days. Amazon.com (AMZN) saw its shares slump 22 percent last year.
History is on the side of those long Amazon. The stock hasn't suffered back-to-back years of declines in its nearly two dozen years as a public company. However, let's go over a few of the things that Amazon can do to make its own luck as it tries to bounce back into market fancy in 2015.
1. Profitability Must Return
Amazon's net sales rose 18 percent through the first nine months of 2014, and that's impressive for a retailer that will top $100 billion in sales this new year -- but sales growth is decelerating. The rub for Amazon has been its shrinking profitability as it spends a lot of money on products and service initiatives that won't pay off right away.
Amazon can point to the $5.7 billion in operating cash flow that it has generated over its past four quarters -- or even the $1.1 billion in free cash flow that it has cranked out in that time -- but it needs to prove itself worthy of its market cap on the bottom line. CEO Jeff Bezos may brag about having the flexibility to take big bets, but investors are no longer as patient or risk-tolerant as they used to be.
2. Fire Phone Needs a Strong Sophomore Season
Amazon's ambitious push into the smartphone market has been a dud. The Fire phone is certainly rich with unique features, but it's been held back by the limitations of not being a true Android device. Yes, the Fire Phone's operating system is built on top of Android's open source platform, but it's a unique system that does not play nice with the growing universe of applications available on Google's (GOOG) (GOOGL) Google Play app store. In short, it's at the mercy of Amazon or app developers porting over their programs to Fire Phone.
That's been a deal breaker for many potential owners, and it's the most common complaint in the negative reviews posted on Amazon's product page for the smartphone.
The neat perks including a free year of Prime, access to Mayday support and the proprietary X-Ray content and Firefly visual ID offerings are great, but consumers aren't settling for anything that's not an iPhone or a true Android device.
3. Fire TV Needs to Be a Hit
Amazon's first forays into hardware -- the Kindle e-reader and Kindle Fire tablet -- were hits, but after the Fire Phone flop, the market's keeping a close eye on last year's Fire TV streaming device.
Amazon's been actively promoting Fire TV and the cheaper Fire TV Stick with television ads starring Gary Busey. It seems to be working. Amazon recently announced that Fire TV was the best-selling media streaming box on the site this holiday season. It also reported that Fire TV Stick is its fastest-selling device ever. That's great, but without real numbers or knowing if these gadgets will continue to sell once the promotional pricing runs its course, we don't know for sure.
4. Echo Can't Flop
Amazon's latest hardware rollout is Echo, an infotainment appliance that uses voice recognition to deliver everything from weather to Wikipedia queries to streaming music playlists. It's Siri on steroids.
Echo became available late last year, but it's starting to ship in volume later this month. If it works -- and initial reviews have been mixed -- it could be a game changer. The price isn't cheap at $199, but it's the kind of device that Apple (AAPL) and Google probably wish they had rolled out first.
5. Amazon Media Streaming Offerings Need to Stand Out
A big reason for the success of Amazon Prime -- beyond the strong marketing message of paying $99 for a year's worth of complimentary two-day shipping on any Amazon-warehoused item -- is the growing arsenal of digital goodies that Amazon includes in the service.
The impressive collection of streaming video, monthly Kindle e-book rentals, photo storage and access to more than a million songs are making Prime sticky, but this could be the year that Amazon tries to see if any of these offerings can work as stand-alone services.
If Amazon is successful, it would help justify the money it's spending to ramp up these offerings that are presently being included at no additional cost. The digital treats helped Amazon push the annual rate of Prime up from $79 to $99 last year, but the real test will come when we see if consumers line up for these services on their own.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Amazon.com, Apple and Google (A and C shares). Try any of our Foolish newsletter services free for 30 days. Want to make 2015 a winning investment year? Check out The Motley Fool's one great stock to buy for 2015 and beyond.