3 Reasons Amazon Wants In on the Smartphone Business: StockTwits

NEW YORK (TheStreet) -- The invitations are out. And if rumors are true, Amazon's  (AMZN) June 18 event will be the coming-out party for a new smartphone with a 3D screen that could shake up the handset industry.

$AMZN The new amazon phone is a game changer!! People are flipping over it! This

? JEFF CASHMAN (@DOODLEDOG88) Jun. 5 at 06:17 PM

But why would an Internet retailer and content company want to disrupt a crowded business that, on the surface, has little to do with its core business? Is Amazon CEO Jeff Bezos simply determined that Amazon spend all its profits rather than return money to shareholders?

On StockTwits.com, investors overwhelmingly believe that Amazon has three good reasons for getting into the mobile handset business. One reason is to protect its e-commerce empire. But the other two are actually to expand profit margins.

1. Amazon wants to make sure its store is linked seamlessly to the way most people shop online.

The smartphone has replaced the computer as the platform most people use to interact with the Web. Doubt it? Just ask tech giants like Facebook (FB). Its CEO, Mark Zuckerberg, said in March that mobile was the platform of today.

Phones have become a key way people shop. Smartphones generate nearly 30% of online visits to Internet retailers, according to an April study by Branding Brand, a mobile commerce platform that tracks visits to e-tailers. Smartphone visits to store sites jumped nearly 84% in April from the prior year. Orders increased 96% from the same period a year ago. Revenue jumped nearly 116% from April 2013, according to the study.

The fear for Amazon is that a company like Apple  (AAPL) or Google  (GOOG) could make a shopping app that seamlessly connects from the phone to their own mega store, thereby stealing Amazon's increasingly mobile customers. Amazon is already contending with the fact that its media and game offerings are not as easy for mobile users to buy in its platform as stuff on iTunes or Google Play.

2. Amazon wants to get into a higher margin business

This reason might give investors some pause. After all, Amazon has a history of selling devices as loss leaders to promote shopping. Blog teardowns have shown that Amazon loses money on its Kindle tablets. But some StockTwits investors insist that smartphone margins are attracting Amazon to the business.

$AMZN has 3% margins. $AAPL has 60% margins if phone costs 200 to make, they can sell it for 220 and they crush it. and overall margins

? sam (@smartertrader) Jun. 5 at 09:41 PM

$AMZN so their margins rise and revenue goes up. Why do analysts not get this. amazingly simple.

? sam (@smartertrader) Jun. 5 at 09:44 PM

3. Advertising.

Amazon is getting more aggressive in the advertising business. It sells products ads on its site and is ramping up its video ad offerings, according to an article on recode.net, a spinoff of the AllThingsD blog by former Wall Street Journal reporters Walt Mossberg and Kara Swisher.

The head tracking technology reportedly in Amazon's smartphone could allow it to better determine where people are looking on a screen and if they see an ad. The technology could determine the effectiveness of advertising better than pay-per-click, enabling Amazon to charge a higher premium for its ads.

$AMZN If they use cameras in the front to track users heads for 3d effect, why not track for time spent looking at ads etc

? Matthew (@Rolltidetrader) Jun. 5 at 08:00 PM

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At the time of publication, the author held no positions 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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