This Is Where Amazon Stock is Going Next
In recent months, Mr. Market seemed to be having a hard time putting a price on Amazon.com, Inc. (NASDAQ:AMZN) stock. From last December to this February, Amazon stock plunged more than 25%. Since then, the stock has started an incredible climb, gaining more than 40% between February and June.
But it’s not like anything has fundamentally changed about the company’s outlook. How on Earth can you value Amazon stock?
Well, by now, everyone knows that Amazon runs a solid business with wide economic moats. What many investors don’t agree upon is what the future holds for the company: is it still going to be mainly an e-commerce company?
In a way, yes, but to be more precise, Amazon is going to build an ecosystem around consumers.
Let me explain…
Right now, millions and millions of consumers are already using Amazon’s e-commerce platform, but the company is not satisfied with people going to their computers, tablets, or smartphones to place their orders. Instead, Amazon wants to have a physical button in your house so that whenever you want to order something, you just press the button corresponding to that product and an order is instantly placed.
This may not seem to be all that helpful to consumers at first. But when you can press the “Tide” button on your washing machine when you realize you’re running low on detergent, why bother going to the store? (Or possibly having to make an extra trip to the store when you realize you forgot to add the item to your shopping list the first time?)
As a matter of fact, you can get these buttons—which Amazon calls “Dash Buttons”—on thousands of products from top name brands. You could have a Tide button on your washing machine, a Huggies button next to your baby’s change table…you get the idea.
What this means for Amazon stock is that these buttons help keep consumers in the company’s ecosystem. Previously, shopping on Amazon meant heading to the company’s web site or opening the app, searching for the product, adding it to your cart, completing the order, and then waiting for delivery. With the Dash Button, you can skip the first three steps with the press of a button. And with the free unlimited two-day delivery included in “Amazon Prime” memberships, the wait for delivery part has been dramatically improved.
Of course, when you are running out of something completely and need it right away, going to a physical store would still be the fastest option. But note this: while Amazon can’t deliver products in the blink of an eye, it can help with the situation by ordering something before it runs out.
Amazon’s “Dash Replenishment Service” (DRS) does just that—it allows connected devices in your home to order physical goods directly from Amazon when it senses you’re running low. You don’t even need to press the button to make your order.
For instance, Amazon has partnered with Brita to launch the WiFi-enabled Brita “Infinity” pitcher. The built-in sensor tracks the amount of water passing through the filter. When the existing filter is nearing its capacity, the device notifies Amazon to send a new filter to you. (Source: “Amazon and Brita Just Solved the Biggest Problem in Your Fridge,” Time, February 29, 2016.)
The company is even going into the grocery business, something that was once thought impossible for e-commerce companies. The service is called “AmazonFresh,” which allows customers to order groceries for delivery within 24 hours. Right now, the service is available in a select number of large metropolitan areas, including New York City, Philadelphia, and Seattle.
How much potential do all these services have? A lot. To put it simply, Amazon is not just competing with e-commerce companies. The next big battle is going to be between Amazon and traditional retail giants.
The Bottom Line on AMZN Stock
Amazon already has a huge lead over Wal-Mart Stores, Inc. and Target Corporation in online retail, but these retail giants are still dominant in the multi-trillion-dollar global retail industry. If Amazon could crack into even just a small percentage of this market share, AMZN stock could soar.