AMZN Stock’s Winning Strategy
Investors tend to either love or hate Amazon.com, Inc. (NASDAQ:AMZN)—there is no middle ground. I know that sounds extreme, but believe me, AMZN stock is one of the most divisive investments on the market. Investors either buy wholeheartedly into the company’s vision or they don’t. It’s just that simple.
The firm’s share price trades at an earnings multiple that stretches into the hundreds, and that’s when there are any profits at all. I admit that openly.
More often than not, Amazon’s bottom line is drenched in red ink, but don’t think that means I’m bearish on AMZN stock—because I’m not. Amazon is a phenomenal company that very few people understand, but that’s exactly why it’s so successful.
You see, other companies can’t imitate what Amazon does. It’s just too hard to try and compete with the e-commerce giant because it has its fingers in everything. Publishing, retail, music streaming, video streaming, cloud computing, and who knows what else?
There simply is no other company like it. Amazon is what I like to describe as an “infinite growth machine,” or “IGM” for short. It is always hunting for a new industry to conquer. Once it pushes into a new business, the competition better watch out.
Invade and conquer, that’s Amazon’s style.
Think about what happened to the traditional booksellers. They didn’t survive. Think about the brick-and-mortar retailers that, one by one, are closing their doors. They simply couldn’t keep up with Amazon’s e-commerce model.
Even when these businesses tried to imitate the online shopping experience, they couldn’t match Amazon’s pricing and efficiency. The deliveries are just too rapid and too accurate.
Need an item delivered in two days? Amazon has you covered. Need it tomorrow? Yes, Amazon has you covered for that as well. And here’s the best part, dear reader: every single delivery is free of charge if you have a “Prime” membership.
That same Prime membership will also give you a Netflix-style streaming service for music, movies, and TV shows. What Amazon is trying to do is make Prime a passport for every consumer experience you can imagine. It’s an incredible idea that only Amazon (with the possible exception of Facebook) can execute.
I call that a winning strategy.
If we turn our attention to the software-as-a-service (SaaS) side of the business, we’ll see that Amazon is also dominating the competition in that market. Its “Amazon Web Services” (AWS) is light-years ahead of every single one of its rivals in the SaaS industry.
Over the last few quarters, AWS has pulled the company into the black and kept it there. It’s basically a giant cash cow for Amazon, but here’s what most people don’t know: AWS is only just getting started.
Its last decade of success was built on the first generation of companies to use outsourced IT, but just think about how many companies will be born in the decades still to come.
New firms will crop up, needing all of the infrastructure that is necessary survive the digital landscape. Amazon is where these companies will go to get their servers for storing data, computing power for analytics, and networking features to stay connected.
Amazon can provide them these services at prices few can match. How can you beat a pay-as-you-go pricing model from one of the most efficient and reliable companies on the planet? The simple answer is you just can’t.
Amazon is the unequivocal champion of cloud computing, the banisher of bookstores, and the reigning king of retail.
Its share price surged 66.72% over the last 12 months, which is staggering considering the company already had a market cap ranging into the hundreds of billions. Few other ultra-large tickers are capable of such extraordinary growth.
Barring any short-term fluctuations, like those we saw after the Brexit, Amazon stock seems to be on an unstoppable path to huge returns. I remain heavily bullish on the company, particularly when market dips push the stock into discount territory.
In other words, forget the AMZN stock bears. They know nothing.