The Bears Are Wrong on AMZN Stock
In a year of marginal gains, Amazon.com, Inc.’s (NASDAQ:AMZN) growth has been nothing short of amazing. If you have been following Amazon stock’s performance, its growth this year has maybe not been entirely unexpected. Thanks to the company’s warehousing and logistics prowess and its virtually untouchable industry foothold, AMZN stock should continue to reward investors, while the broader retail sector struggles.
Amazon.com, Inc. Topped Out Dead Money?
Amazon.com, Inc. has had an amazing year, up 112% year-to-date, making this a lucrative holiday shopping season for patient owners of AMZN stock. However, at $665.00 per share, is the stock offering a great opportunity or is it stretched thin?
Naturally, the answer depends on whom you ask. Back in January, when Amazon was trading at $315.00 per share, I read an article that highlighted numerous reasons why Amazon is dead money in 2015.
Unfortunately, all of the company’s so-called failures were, for the most part, really minor, save, of course, for the fact that the company wasn’t profitable. However, I don’t know a solitary consumer who cares about that and it seems a lot of investors are prepared to overlook that metric, as well.
What this argument fails to note is what Amazon is amazing at: providing everything under the sun to consumers in every corner of the country and getting it to them in record time.
So, is AMZN stock dead money? Hardly. It’s an industry juggernaut that is just getting started.
Amazon.com, Inc. OWNS Cyber Monday and Online Retail
Alibaba might have an online presence and Wal-Mart might be sprucing up its web site, but they’ve got nothing on Amazon.com and Cyber Monday proved it.
First things first, Cyber Monday rang in record sales that topped $3.0 billion for the first time ever. Online sales soared 16% year-over-year to $3.07 billion. Analysts were forecasting an increase of around 12%, or $3.0 billion. (Source: “Adobe Data Shows Cyber Monday Largest Online Sales Day in History,” Adobe, November 30, 2015.)
Who was the biggest winner on Cyber Monday? Amazon. Why? It generated 36% of all online sales! Way back in the rearview mirror was Best Buy at 5.5%, Wal-Mart at 3.8%, Nordstrom at 3.6%, and Macy’s at 2.8%. (Source: “Cyber Monday Sales Up 6% This Year,” Slice, December 2, 2015.)
While Cyber Monday was a clear win for Amazon, it’s important to remember that the shopping day is no longer a one-day event. Thanks to the proliferation of smartphones, Cyber Monday is simply the starting point for the retail sales holiday, which runs the entire month of December. This gives Amazon almost four more weeks of rapid, revenue-generating sales from happy, on-the-go shoppers.
Case in point, smartphones and tablets continued to drive Cyber Monday sales. Mobile accounted for 49% of shopping visits resulting in 28% of online sales. Almost $515 million in sales were attributed to mobile.
Amazon Gives Consumers What They Want
The success of Amazon isn’t just that it provides consumers with choice and it’s not just because it has a great online presence. Instead, the company’s success comes from what it promises: fast delivery.
The second a consumer hits “purchase” they’re not necessarily thinking about the great deal they got; instead, they usually want to know whether that product they just purchased will get to them by the delivery time promised and that they actually receive what they ordered. This is where Amazon comes through in spades.
One of the main reasons Amazon can deliver on its sales is because it has the most exhaustive fulfillment and warehousing operations. In North America alone, Amazon has 80 fulfillment centers with a total of nearly 60 million square feet.
Most recently, the company announced it is opening two new centers near Columbus totaling more than 1.8 million square feet. In addition, Amazon has close to 20 dedicated sortation centers to help it gain control of the last-mile delivery process. (Source: “Amazon to Open Two Fulfillment Centers near Columbus Creating Thousands of New Jobs,” Amazon.com, Inc., November 18, 2015.)
Obviously, this is a smart move. Analysts estimate that the location of these fulfillment centers, which may be larger than one million square feet (as big as 28 football fields) bring the company within 20 miles of 31% of the country’s population and within 20 miles of 50% to 65% of its core same-day addressable market. (Source: “Here are all of Amazon’s warehouses in the U.S.,” Business Insider, March 24, 2015.)
Fast delivery is another trademark of Amazon, but for those who think next-day delivery and one-hour delivery aren’t quick enough, “Prime Air,” Amazon’s future drone delivery system, is designed to get packages into customers’ hands in 30 minutes or less. It’s still a little while away from reality, but the service is on its way.
Other brands and businesses will try and cut into Amazon’s business model, but the company’s commercial properties and state-of-the-art fulfillment technology has certainly created a high barrier to entry.
Clearly, the last thing Amazon.com, Inc. is is dead money. Those who dumped their stock at the beginning of 2015 lost out on a chance to more than double their money. The same could be true as we head into 2016.
The company may have issues, but it’s a juggernaut doing what no one else does—or rather what no one else can, for now, making AMZN stock quite attractive.