The One Reason Amazon Stock Could Skyrocket
Although Amazon.com, Inc. (NASDAQ:AMZN) is one of the largest companies in the world, it hasn’t made much in the way of profits. Investors, however, have always held faith in Amazon stock because they think it will eventually deliver enormous profits.
It seems like their faith is being rewarded. Amazon had two straight quarters of profits in 2015, and things are only getting better. After the success of the “Kindle,” CEO Jeff Bezos decided to add new products to the company’s hardware offerings.
Bezos saw an opening in the emerging trend known as the “Internet of Things,” or IoT. He has made aggressive moves to take over this nascent industry, and the evidence shows his firm stands to gain heavily from this early incursion.
Just to give you a sense of how profitable IoT could be for Amazon, think about this: analysts estimate that the Internet of Things could be a $1.7-trillion industry by 2020. (Source: “Internet of Things Market to Reach $1.7 Trillion by 2020: IDC,” The Wall Street Journal, June 2, 2015.)
It’s a big pile of cash just sitting there, waiting for someone to grab it, and Amazon has a two-fold strategy for taking the lead. First off, the company is offering cloud computing services to other IoT companies, which may turn out to be very profitable.
“Amazon Web Services,” the company’s cloud computing arm, is also the division that was responsible for last year’s profits. The margins are incredibly attractive, and Amazon is far and away the market leader in cloud computing.
That’s the first part of the strategy. The second is to build hardware devices that integrate into the home. Alphabet Inc tried a similar strategy with home devices but customers haven’t seemed all that enthused. It’s difficult to figure out what consumers will love.
Amazon has struck gold with its latest device. I want you to understand the importance of this device, because it’s very possible that we could see one of these in every single home in America. It could legitimately be as big as the “iPhone.” I’m talking, of course, about the Amazon “Echo.” Here’s what it does:
The device is essentially something out of the Iron Man movies. It recognizes your voice even if music is playing in the background, the TV is on, or you’re all the way across the room. You can ask it questions, control your lighting, or make it read out news.
But more importantly, it is the first Internet of Things device that customers really love. Just look at the Black Friday sales. According to Amazon, the Echo was the best-selling product over $100.00. (Source: “The Amazon Echo was the best-selling $100+ item on Amazon.com during Black Friday,” The Verge, December 1, 2015.)
Not everyone has appreciated what this could mean for AMZN stock. By selling the Echo, Amazon is effectively getting a remote controller inside people’s homes. It can then proceed to sell other IoT devices that would extend the Echo’s functionality.
The fact of the matter is that customers absolutely love the Amazon Echo. It could open up Amazon to further profits and, in turn, larger gains for AMZN stock.