Can Amazon Tackle Hardware and Payments?

Amazon is quickly expanding its focus beyond just ecommerce, becoming both a hardware and software company, but is it too much to handle?

May 5, 2014 at 9:30PM

Amazon (NASDAQ:AMZN) made hardware a greater focus earlier this month with its Fire TV, and it's now making a splash on the software side. The company inked a deal with HBO to bring some of the network's biggest hits to Prime Instant Video. Amazon could also be looking to get involved in the mobile payments space. Even with all these new initiatives, shares are down almost 15% over the last month. It appears that this could be an enticing buying opportunity for long-term investors.

Amazon's move to payments
Given that Amazon has more than 215 million credit cards on file, it's only natural that it would look toward mobile payments; Amazon has been trying for some time to monetize its customer payment data. CEO Jeff Bezos has made mobile payments an area of importance for the company.

One possibility is that Amazon could allow other e-commerce sites to use its payment and shipment data to purchase products. In return, Amazon would be paid a fee. Amazon has also developed a product that keeps a digital record of visitors to other e-commerce sites by using login information from Amazon. This info could be useful to other e-commerce companies. It has also launched a new product called "Login and Pay With Amazon," which is a combination of Amazon's payment structure and an integrated login that can be used on other sites.

Amazon might also be considering a payment support and point-of-sale system for brick-and-mortar retailers that would use Kindle tablets. Then, there's the mobile wallet. Amazon has been looking into off-line payment options, where a mobile wallet could be of real help. The company does have a peer-to-peer payment service, which is a small part of its business, but has not been actively promoted.

Google (NASDAQ:GOOG) (NASDAQ:GOOGL), launched Google Wallet in 2011 and it has had little success in replacing cash and credit cards. It has since thrown everything payments-related into the Google Wallet division, so there's a lot going on there. However, one of the quickest and easiest ways for Google to make a splash in mobile payments is with an acquisition.

One of the most attractive opportunities in the market is Square. It's been reported that Google might look to buy Square. Google has nearly $60 billion in cash, with debt of less than $10 billion. It could easily swallow up Square. However, with Google Glass expected to come to market later this year and its recent acquisition of Nest Labs, it might already have its hands full.

Amazon and Bitcoin
Amazon doesn't want to accept Bitcoin as a method of payment. The company has noted that the demand from customers to use Bitcoin is minimal. Bitcoin has proven to be somewhat unstable, and Amazon has its own plans for proprietary payment platforms.

In fact, Amazon appears to have its own plans to create a virtual currency. It launched Coins last year. Coins can currently be used only for purchases of apps for the Kindle Fire, but a complete infrastructure could be built out in the future. The objective of Amazon's virtual currency is to replace cash and to encourage consumers to spend more.

A smartphone from Amazon?
There's also speculation that Amazon could launch its own smartphone. A smartphone would provide Amazon with valuable insight and data about the preferences and habits of users. It would also give Amazon an extension to the mobile wallet business, making the move into mobile payments that much easier.

If rumors are true, we could see a 3-D smartphone from Amazon as early as this year, and it won't require 3-D glasses. It would use retina tracking technology that allows 3D images to be seen with the naked eye. That would be a key advantage for a company in an an industry where the combined market share of Apple and Samsung is close to 50%.

The one problem is that Apple continues to excel in the market. Apple blew through analysts' expectations last quarter, recording 43.7 million iPhone sales. The consensus was for 38 million iPhones. And with Apple missing on iPad forecast sales, it could mean that Apple will be focusing more on the smartphone going forward. Apple sold 16.4 million iPads last quarter, while Wall Street was looking for 19 million iPad sales.

Bottom line
Although its valuation appears expensive, none of the 44 analysts following Amazon have a sell rating on the stock. And the mean price target is nearly 40% above where shares currently trade. The e-commerce company has proven resilient when it comes to finding new ways to grow revenue. For investors who are looking for a growth play in the tech space, Amazon is worth a look.

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Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends, Apple, and Google (C shares). The Motley Fool owns shares of, Apple, and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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