Shares of Amazon.com Inc. AMZN are on watch Tuesday amidst reports of significant changes in its Echo devices business strategy and broader company initiatives.
Amazon’s Echo devices, featuring the Alexa voice assistant, have not met financial expectations, leading to billions in losses. According to a Wall Street Journal report, Amazon's strategy of selling Echo devices at low prices to drive sales on its e-commerce platform has resulted in over $25 billion in losses from 2017 to 2021. Customers primarily used Echo devices for free applications, such as setting alarms and checking the weather, rather than engaging in more profitable activities.
In response, Amazon’s CEO Andy Jassy is rethinking the business model and plans to introduce a paid tier for Alexa, aiming to turn around the losses. This change comes amidst skepticism from some engineers working on the project.
Despite these losses, an Amazon spokesperson highlighted the success of other ventures within the devices division, stating, “Hundreds of millions of Amazon devices are used by customers around the world and to us, there is no greater measure of success.”
What Else: Alongside this strategy shift, Amazon is integrating conversational generative AI into Alexa. The internal project, "Banyan," aims to introduce a premium version of Alexa with a subscription model, potentially costing around $5 monthly. This move is designed to better compete with new generative AI-powered chatbots from companies like Google and OpenAI.
Additionally, Amazon’s book business has experienced a resurgence, generating $16.9 billion in gross merchandise sales in the first ten months of 2022, showcasing varied performance across different sectors of the company.
Analyst Commentary: Analysts at JMP view Amazon’s 2024 Prime Day favorably and expect the event to drive durability in e-commerce sales and potentially improve margins through increased volume and fulfillment network utilization. JMP maintained a Market Outperform rating on Amazon with a $225 price target. Moreover, Morgan Stanley’s Research Analyst Brian Nowak remains optimistic about Amazon, citing AWS growth and the potential for improved North America profits. Nowak aligns with street estimates on total revenue for third-quarter and has set a new price target of $240, indicating a 30% upside.
AMZN Price Action: Amazon shares were trading 2.35% higher at $186.84 according to Benzinga Pro.
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