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NEW YORK (TheStreet) -- Amazon (AMZN) - Get Free Report is launching its first mobile phone featuring a unique 3-D interface and the ability to automatically recognize objects and purchase them directly from Amazon's Web store. It will be competiting against the more established phones and operating systems of Apple (AAPL) - Get Free Report, Google (GOOG) - Get Free Report and Samsung (SSNLF) .

When the company announced the phone last week, Amazon shares climbed 2.7% to $334.38 only to fall, after peaking at $338.13 early on Thursday. Amazon closed Wednesday at $327.44, down nearly 18% for the year to date but up nearly 20% for the past 52 weeks.

Should you buy Amazon shares? For the company itself, yes; for the Fire, maybe not.

Consider, Amazon's new Fire phone is intended to be a direct competitor to Apple's iPhone and Samsung's Galaxy S5 with a price of $649 without a contract or $199 with an AT&T (T) - Get Free Report contract.

Sweetening the pot, Amazon is also offering Fire purchasers 12 months of free membership to the Amazon Prime two-day delivery and content streaming service. This fits in nicely with the phone's ability to recognize real-world objects and purchase them from the store with just a few clicks.

Amazon's e-reader experience gives the company one small advantage because it has already had a significant amount of time to develop a streamlined system for delivering e-books and other media to customer devices via its Kindle platform. The new Fire smartphone must be able to build on this experience for the company to succeed.

The smartphone market is dominated by industry heavyweights Samsung and Apple, which in the last decade have pushed previous leaders Motorola and Nokia (NOK) - Get Free Report to the side. Samsung is a household name in Asian markets in particular and is unlikely to yield much of its share to Amazon, which doesn't have much of a footprint in the region.

However, in western markets Amazon may be able to tilt some smartphone owners' loyalty from the iPhone and Google's Android offerings based on customers' previous good experience of Amazon's web store. But the app ecosystem is definitely Amazon Fire's weakest link. With just 200,000 apps available, it pales in comparison to the more than a million apps that both Google Play and Apple each offer.

Some may see Amazon's offering as simply a glorified shopping machine. Even CEO Jeff Bezos portrayed the product, during its unveiling, as a gateway to buying from Amazon's Web site. It's a compelling feature for those who already do most of their shopping from Amazon, particularly with the year's subscription to Prime thrown in.

The Fire only being available with AT&T is another disadvantage considering you can buy an iPhone or  Android phone at any carrier.

How are Apple and Samsung likely to respond to Amazon's smartphone offering? The Fire has a superior screen size to Apple's current range of iPhones but is in a firm second place versus Samsung's S5. Fire's slight screen size advantage is likely to be short-lived, however, considering the reports the iPhone 6 is likely to have a bigger screen.

Also, the Fire comes with Qualcomm's (QCOM) - Get Free Report Snapdragon 800 CPU, a processor released in 2013. With Apple likely to release its new A8 chip with its latest iPhone, it will have another significant advantage over Amazon as well as its already superior selection of apps.

Bottom Line

Looking at the overall picture, Amazon is a great company. However, its entry into smartphones is a risky one and unfamiliar territory to the online giant. I expect the next smartphone Amazon sells after this version will put it on more of an even footing with other smartphone developers.

To my mind, because of the company's potential in its other business sectors over the coming years, Amazon's stock remains a buy.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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TheStreet Ratings team rates AMAZON.COM INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate AMAZON.COM INC (AMZN) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 4.4%. Since the same quarter one year prior, revenues rose by 22.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • AMAZON.COM INC has improved earnings per share by 27.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, AMAZON.COM INC turned its bottom line around by earning $0.58 versus -$0.10 in the prior year. This year, the market expects an improvement in earnings ($1.10 versus $0.58).
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
  • The gross profit margin for AMAZON.COM INC is currently lower than what is desirable, coming in at 33.92%. Regardless of AMZN's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 0.54% trails the industry average.
  • Net operating cash flow has declined marginally to -$2,502.00 million or 5.48% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.