Why Amazon's Unveiling of Fire TV Was Underwhelming

NEW YORK (TheStreet) -- Amazon (AMZN) shares were falling 1.9% to $335.55 on Thursday following what at least one analyst has called the launch of Fire TV as "underwhelming."

Amazon's Fire TV is the Seattle company's version of a set-top box streaming device, which competes directly with Apple (AAPL) TV, Google (GOOG) Chromecast and Roku.

Amazon boasted Wednesday at a press conference unveiling the device that it was "thinner than a dime," had faster processing to alleviate buffering issues, enabled voice search and access to tons of content from Netflix (NFLX), Hulu Plus, WatchESPN, and YouTube, plus over 200,000 movies and TV episodes from Amazon Instant Video. The device also offers users music and mobile games to the TV. Amazon is selling the device for $99 and will offer a free month trial of Amazon Prime and Netflix.


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Wall Street analyst Michael Pachter of Wedbush Securities was not impressed with the launch. Pachter rates Amazon at "neutral" with a price target of $330. "We thought Fire TV's debut was underwhelming, and believe that Amazon missed an opportunity to introduce a highly-differentiated device," Pachter writes in a note.

"We believe that the primary use for Fire TV will be video streaming through Hulu Plus, Netflix, and Prime Instant Video, three applications that are already available on a slew of other consumer electronics devices, including Fire TV's primary competition. With similar application availability and pricing for Fire TV and its competition, we remain unconvinced that buyers will opt for Fire TV at the expense of Apple and Roku, particularly among non-Amazon customers," he writes. "Further, most gaming consoles already provide access to these streaming services, making Fire TV another entry in an already crowded space. Although Amazon has many notable partners lined up, we do not expect Fire TV's gaming initiative to be successful, as we do not anticipate that consumers will perceive a need to play mobile games on their TVs."

Not everyone thinks Amazon is too late to the game. In fact, Piper Jaffray analyst Gene Munster believes that the launch will force Apple to step up its game with Apple TV, forcing it to launch an updated device (or stick) quicker than expected.

"We believe the launch of the Amazon Fire TV highlights Apple's necessity to aggressively update its Apple TV offering and ultimately introduce a full television," according to a note. "Given the breadth of content available on Amazon's offering in addition to gaming capability and voice control, two features we have expected from Apple TV, we believe that Apple will launch at least an updated Apple TV by the back half of 2014 if not sooner. We also continue to expect a full TV in 2014 as we view set-top boxes as an intermediary step between the ultimate vision of a television that is seamlessly integrated with online services and cable, but with an intuitive user experience."

Here's what two other analyst had to say about Amazon's Fire TV.

Justin Post, Bank of America Merrill Lynch (Buy; $435 PT)

Fire TV is a push by Amazon to gain a better foothold in the living room where a large portion of media consumption occurs. We would expect Amazon to sell the Fire TV at close to break-even (similar to its Kindle and Kindle Fire strategy) with the goal of driving media sales and Prime customer acquisition (30 day free trial of Prime included with Fire TV purchase). While the device seems late to market vs. Apple TV (over 13mn units sold) and early adopters of competitive devices may not switch, Prime members (potentially 20mn in US) may be tempted to buy Fire TV as we like the competitive features. Features include: 1) ability to access video content from Netflix, Amazon, Hulu, YouTube, etc; 2) ability to access music from Amazon, Pandora, etc. 3) 3x processing power and 4x memory of competitive devices (according to Amazon); 4) voice search/navigation; 5) integrated gaming platform; and 6) Freetime Unlimited, a subscription service with kids content for Prime and non-Prime customers.

Ronald Josey, JMP Securities (Market Perform, N/A PT)

We believe Fire TV, currently available for $99, completes the Amazon Kindle ecosystem and expands the company's reach across all four screens (smartphone, tablet, TV, and desktop). Similar to Amazon's approach with its Kindle eReaders and Fire tablets, we believe Amazon is selling Fire TV at minimal (if any) margin and that monetization will be from incremental digital media consumption across Amazon's media ecosystem. While it is still early in the overall penetration of streaming devices relative to the [approximately] 300M installed TVs domestically, as of yesterday afternoon Fire TV now ranks as the top selling Electronics device on Amazon with Chromecast ranked second; we note that the Roku Streaming Stick, Roku 3, and Apple TV all rank in the top 10 electronic products sold on Amazon. Fire TV includes a month of Prime and as adoption rises, we expect Amazon's media revenue to benefit. While we are positive on the potential of Fire TV and on streaming media devices in general, we remain on the sidelines on Amazon shares until we have more confidence that Paid Units growth stabilizes, that digital media adoption ramps internationally, and in improving international EGM trends.

--Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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