Wall Street’s greeting of the new Fire smartphone introduced by online retail giant Amazon.com (Nasdaq: AMZN) might be described as a collective “meh.”

Since the phone’s unveiling on June 18, Amazon’s stock hasn’t moved much — in fact, it’s down a couple percent.

Perhaps the Street hasn’t yet fully considered the Fire’s potential. Or maybe there just isn’t much that can propel the stock right now since its price-to-earnings (P/E) ratio is far beyond excessive already (more than 500 versus 19 for the S&P 500) and there was a pretty good run-up in the month or so leading up to the Fire’s introduction.

#-ad_banner-#Whatever the reason for the Street’s apparent apathy, I suspect the Fire will eventually prove to be a competitive alternative to other smartphones. What’s more, it should help to significantly boost Amazon’s already fast-growing revenues, which expanded more than 11-fold during the past decade, to $78.1 billion from $6.9 billion in 2004. 

That said, the Fire probably isn’t a game-changer, although it could theoretically become one since smartphones tend to evolve and improve over time. In its present form, though, the Fire still offers compelling features that should attract substantial numbers of new users and complement Amazon’s existing business.

Probably the most touted feature is the so-called Dynamic Perspective, which uses four front-facing cameras, LEDs and head-tracking sensors to deliver an impressive, constantly shifting 3-D display that gives the illusion of looking through a window (as opposed to creating images that jump out at you like a 3-D movie). 

Other key features that should appeal to smartphone users are one-handed navigation, auto-scroll and 24/7 customer support by video chat. Free unlimited photo storage on Amazon’s cloud service should also help attract new users to the Fire, since insufficient storage is a common issue with smartphones.

	YouTube/Amazon
	The Firefly features a 3-D display that gives the illusion of looking through a window.

While these are the sorts of things that could draw consumers’ attention, the most important feature in terms of revenue and profit generation is Firefly — an advanced image, text, and audio recognition technology (most smartphones don’t recognize audio) that enables users to scan and identify products, music, art, movies and other things they encounter in the real world.

Of course, a key goal of Firefly is to get people shopping online. Thus, there’s a dedicated activation button on the Fire smartphone, and the technology directs users to Amazon.com listings of scanned items that are available for purchase.

Currently, Firefly can recognize more than 100 million items, according to Amazon, including 70 million products, 35 million songs and nearly a quarter-million movies and TV episodes. The technology can also be used simply to get information more efficiently and will automatically open a Wikipedia page, for instance, on a piece of art it recognizes.
 
Yet another inducement that could translate to more revenues for Amazon is a free year of Prime for new Fire users. Prime, which usually costs $99 per year, already boasts about 20 million subscribers and provides services such as free two-day shipping on product purchases and access to a large library of popular TV shows, movies and books through Prime Instant Video and the Kindle Lending Library. Obviously, Amazon hopes at least some customers will value Prime enough to become paying subscribers when their free subscription expires.

The Fire’s key features should help offset certain shortcomings. For instance, critics of the device point out that it can only run a tenth as many apps as iPhones and Droids and that it’s missing a number of popular ones. What’s more, no one knows yet if app developers will consider it worth their time to make the relatively minor changes needed for the missing apps to be Fire-compatible.

Whether they will hinges on strong consumer acceptance of the Fire, something critics say is unlikely because the North American smartphone market is nearly saturated, and smartphone users tend to be highly loyal to a particular device and company once they’ve made a selection. However, this argument doesn’t account for the many millions of new smartphone users who will be entering the market in coming years.

In the U.S., children typically get their first mobile device when they’re about 12 years old, according to AT&T (NYSE: T). And although that first device may not be a premium product like a Fire, iPhone or Droid, kids are increasingly being exposed to smartphones at very young ages. Most will likely have firm preferences by the time they do get a higher-end device, which typically occurs around the time they enter high school.

Consider, too, that there are roughly 20 million 12-year-olds in the U.S., and that number is projected to grow to about 23 million by 2020. Thus, Amazon should have access to a large new pool of smartphone users in the coming decade — and a decent share of them could choose Amazon as their provider. What’s more, the global smartphone market is far from saturated, so the Fire should have plenty of international opportunities as well.

I certainly don’t mean to suggest Amazon might someday usurp market leaders Samsung (OTC: SSNLF) and Apple (Nasdaq: AAPL) in smartphone sales. It’s unlikely ever to come close.

But I can see the company carving out a meaningful market share over time, say something around 5% globally. That’s not much, but it could still translate to substantial additional revenues, based on projections by research firm IDC for smartphone sales to reach 1.7 billion units globally by 2017 (with an average sales price per unit of $265).

This suggests the global smartphone market could grow to $451 billion at that time, compared with $338 billion now. A 5% portion would add nearly $23 billion to Amazon’s sales total that year, and even a 2% slice would mean $9 billion more in revenue. And that’s without the extra sales the Fire could help generate by increasing Amazon’s e-commerce traffic and bringing in new Prime subscribers.

That is, of course, a rough analysis. But I think it shows the great opportunity the smartphone space holds for Amazon despite the fact that it’s a late entrant to the industry.

Risks to Consider: The Fire isn’t cheap, with pricing comparable to that of the iPhone 5S, and it’s currently available only through AT&T — two factors that could hinder the device’s adoption by consumers initially.

Action to Take –> For some time, analysts have been projecting an extended phase of very fast earnings growth for Amazon. Nevertheless, the stock hasn’t been worth owning, in my opinion, because of its excessive valuation — even relative to projected profits. But it may be time to re-evaluate this stance since it appears the Fire could supplement Amazon’s overall business enough to push the P/E ratio and other valuation metrics into more reasonable territory, at least by Amazon’s standards.

If the potential of the Fire smartphone has you excited, wait until you see the truly-game-changing trends that Andy Obermueller has been working on. Andy, the Chief Investment Strategist behind StreetAuthority’s Game-Changing Stocks advisory, has identified five trends with the potential to revolutionize the way we live our lives — and make early investors a killing. To learn more about these developing technologies — and the companies behind them — follow this link.