Don’t Listen to the AMZN Stock Bears
If you bought shares of Amazon.com, Inc. (NASDAQ:AMZN) this year, you are likely smiling right now. In less than a year, the AMZN stock price managed to climb an astonishing 118.3% from $310.35 to $677.56. The company managed to build a wide economic moat in the e-commerce business and has huge growth potential in cloud computing. If the company continues to improve its financials, as it has three times this year so far, Amazon’s stock price could soar even higher.
Amazon’s Wide Economic Moat
Competition in the e-commerce business is getting intense. Most recently, Amazon’s competitor Jet.com raised $500 million through its newest round of funding, boosting the e-commerce startup’s valuation to $1.5 billion. However, Amazon has little to worry about, because the company has something that is way ahead of its competitors: logistical infrastructure.
You see, for consumers shopping online, the speed and cost of shipping matters. Those companies that can offer fast and inexpensive shipping are bound to have more customers. Fortunately, Amazon is in great shape. With 106 fulfillment centers in North America, the company is way ahead of its competitors when it comes to logistical infrastructure.
Additionally, Amazon’s solid logistical infrastructure allows the company to offer more conveniences, such as same-day shipping, to its customers. In October, Amazon expanded its “Prime FREE Same-Day Delivery” to Chicago and Orlando, meaning the program now serves more than 750 cities and towns across the U.S. With this service, Prime members can place their $35.00+ order before noon and get the item delivered on the same day before bedtime. (Source: “Prime Free Same-Day Delivery Expands to Chicago and Orlando Metro Areas—Serving More than 750 Cities and Towns Nationwide,” Amazon.com Investor Relations web site, October 21, 2015.)
Solid Growth in Amazon’s Financials
The remarkable growth in the AMZN stock price shouldn’t be that much of a surprise, given how great the company has done so far this year. In the third quarter, net sales surged 23% year-over-year to $25.4 billion. Excluding the unfavorable impact from exchange rate fluctuations, the increase in net sales comes in at 30%. (Source: “Amazon.com Announces Third Quarter Sales up 23% to $25.4 Billion,” Amazon.com, Inc., October 22, 2015.)
The company’s bottom line was even better. In the third quarter of 2015, Amazon reported a net income of $79.0 million, translating to earnings of $0.17 per share. This is miles better compared to its year-ago period, when the company reported a net loss of $437 million, or $(0.95) per share.
Note that other than its e-commerce business, Amazon has another growth engine in its cloud computing service called “Amazon Web Service,” or AWS. So far this year, growth in AWS has been absolutely phenomenal. In the first quarter, AWS net sales increased 49.1% year-over-year to $1.6 billion; in the second quarter, they surged 81.5% year-over-year to $1.8 billion; and in the third quarter, AWS net sales grew 78.4% to $2.1 billion. As for AWS’s operating income, in the third quarter, it totaled $521 million, a more than 430% increase compared to the $98.0 million in operating income for the same quarter last year.
The Bottom Line on AMZN Stock
The nice thing about Amazon is that unlike many tech companies, Amazon.com is actually making decent profits and few things please investors more than growth in a company’s bottom line. Therefore, if Amazon continues to translate top-line improvements into earnings growth, the upward trend in AMZN’s stock price is likely to continue.