Amazon Prime Day Explained
The biggest retail deals of the year began at midnight last night, but the biggest stock deal of this millennium—at least in the first two decades of it—has been Amazon.com, Inc. (NASDAQ:AMZN). Amazon stock has performed especially well after the big sell-off last February, which affected the whole market, regardless of sector or record.
I prefer to establish a company’s investment merit using facts and arguments, but sometimes numbers can get to the point faster. Amazon stock gained some 55% in the past five months. The year-to-date figure is less impressive at 11.63%, but many companies would love to boast similar Wall Street performance figures.
As mentioned, Amazon launched its biggest operation of the year this morning—“Amazon Prime Day.” Throughout the day, the event will feature over 500,000 items, including virtual items such as storage on “Amazon Cloud.” (Amazon boasts some of the best cloud services in the world at the best prices anywhere.) What does this all mean for Amazon stock?
Amazon Prime Day has already built itself into Amazon stock’s current valuation. Amazon.com is performing better than ever and it is setting new records. There appear to be no obstacles to its growth and “Amazon Prime” memberships will simply contribute to an already well-oiled machine. Amazon Prime Day is designed to reward Amazon’s most loyal customers, namely Amazon Prime members. In this sense, Amazon is preaching to its own choir.
Amazon.com customers already know that they can find anything they could possibly want by typing a few keys on a keyboard or mobile device. They know they will get the top customer service and unbelievable delivery times. In particular, this explains Amazon customers’ confidence in the web site.
The main result from Amazon stock’s perspective is that Amazon will convert more of its users into repeat customers and Amazon Prime members. This should keep a steady stream of new products flowing quickly out of the warehouses from the high-tech universe, including products such as PCs, consoles, entertainment systems, indoor furniture, perfumes, clothing, RC cars, and, of course, books, among many other items. More than ever, anything goes at Amazon.
The super retail performance certainly reflects Amazon stock’s potential. Amazon could “Outperform” its sector peers for the next few weeks. This is not so much because of the fleeting success of big sale promotions, which can have a limited effect. Rather, Morgan Stanley (NYSE:MS) analysts are predicting long-term gains.
Morgan Stanley predicts that Amazon’s growing number of food and clothing items will benefit its bottom line. It notes that these two sectors alone account for more than a billion dollars in consumer spending. The company sees this translating into a 26% boost in growth in the United States alone. (Source: “Amazon.com, Inc. (AMZN) Grocery/Clothing To Boost US Growth By 26%: Morgan Stanley,” The Country Caller, July 11, 2016.)
Amazon is rivaling Wal-Mart Stores, Inc. (NYSE:WMT) for retail domination. Walmart has 40% of the market and Amazon has 38%. It’s only a matter of time before Amazon, thanks also to events like Amazon Prime Day, will match, if not surpass, its rival.
Morgan Stanley has an “Overweight” rating and $800.00-per-share price target on Amazon stock. (Source: Ibid.) Given that Amazon stock is already hovering near the $760.00 mark, the price target seems too low!