Upside for AMZN Stock?
Unless you’ve been living under a rock, you’re probably aware that Amazon.com, Inc. (NASDAQ:AMZN) is a contentious company. Some investors think AMZN stock is priced way too high, but those concerns haven’t dented the share price.
So are the bears right about Amazon? The answer depends on what you’re looking for.
If you want an income stock that will pass through hefty dividends, forget about it. Amazon stock is not for you.
And don’t even bother with Amazon if you want a company that obsesses over its bottom line.
But if you want huge capital gains, then Amazon stock might be exactly what you need.
Let me explain…
People have a hard time understanding Amazon because it is an unconventional company. Its founder and CEO, Jeff Bezos, is a very strange guy who looks at business from a different angle than the rest of us.
But Amazon’s quirks are not weaknesses. They are strengths that Bezos has used to conquer a wide range of markets. He revolutionized the book and retail industries without breaking a sweat. And he won’t stop there.
Bezos is now targeting everything from IT to video streaming. He wants to make Amazon the ultimate one-stop shop where everything is available to anyone.
This strategy has made Amazon into the “Ultimate Value Generator,” or UVG. The company makes an incredible business, harvests those profits, and plows them into new ideas.
That’s simply how Amazon works. It continuously builds value by finding new industries to conquer. The company never sits back on its haunches to take a break.
Take, for instance, the phenomenal success of “Amazon Web Services” (AWS).
As the firm’s cloud computing arm, AWS has become a major profit center. It is raking in cash by the boatload, but those profits aren’t simply collecting in Amazon’s coffers.
Bezos is funneling that cash into a video-streaming service that could topple Netflix. At first, the video-streaming service was only available through “Amazon Prime,” but now, it is a standalone product.
Just like with Netflix, users can pay a monthly fee for access to Amazon’s range of movies and TV shows (some of which are exclusive). However, the company has a long way to go before it can truly compete with the depth and breadth of Netflix’s catalog.
In order to beef up its offerings, Amazon spent billions of dollars on content acquisition in 2015. It will likely spend even more this year, but that alone may not be enough.
To sweeten the deal, Bezos is offering some truly incredible services through its $99.00 Prime membership. Here are some of the additional features.
- Free Food Delivery: That’s right, Amazon launched a one-hour food delivery service in select cities. You simply order food and it shows up at your door. In San Francisco, for instance, there are 117 participating restaurants across 33 zip codes. The best part is that Amazon doesn’t allow any markups or additional fees. Bezos understands how much customers will value this additional service. (Source: “Amazon is now offering restaurant delivery in San Francisco,” Wired, April 26, 2016.)
- Free Same-Day Delivery: Customers were in love with Amazon Prime’s free two-day delivery service, so Bezos decided to accelerate Amazon’s efficiency even more. Anyone with a Prime membership now qualifies for free same-day delivery as long as the items are more than $35.00. Orders placed after noon qualify for one-day delivery. (Source: “Order with Prime FREE Same-Day Delivery,” Amazon.com, Inc., last accessed May 11, 2016.)
- eLibrary: Amazon Prime also gives users access to more than 500,000 digital books. Subscribers can check out books without ever having to worry about late fees. They also get to read them on their “Kindle.”
- Huge Savings: By paying the annual fee for an Amazon Prime membership, customers will end up saving 25%. Companies often use the wholesale pricing strategy to nudge users into long-term commitments, but this steep of a discount shows that Amazon means business.
Those are just a handful of the benefits of an Amazon Prime membership, which is how Bezos intends to lure in customers. He wants them to have an all-access pass to Amazon’s one-stop shop.
Like I said earlier, Amazon is the “Ultimate Value Generator.” It is continuously growing, which means that the relevant metric for AMZN stock is revenue per share, not earnings per share.
The company’s top-line growth is far more important than anything else. Let’s put that in perspective: Amazon’s sales skyrocketed by 308% in the last six years.
When you consider the firm’s pile of outstanding shares only got six percent bigger in that time, the secret of Amazon’s growth becomes apparent. Its revenue per share surged.
In any case, I wouldn’t bet against Jeff Bezos. He is a master planner who took Amazon from a startup in his garage to the multi-billion-dollar behemoth it is today.