This is a Big Step for Amazon.com Inc.
Amazon.com Inc. (NASDAQ:AMZN) stock has had quite a bullish run over the past month, gaining about nine percent.
AMZN stock took a breather yesterday and lost about one percent, to close at $831.00. However, the e-commerce giant is in no mood to rest, and its continuous plans to expand further keep Amazon stock flying high.
Reports came in yesterday that Amazon plans to expand its grocery business by opening new convenience stores. The retail giant shall build brick-and-mortar stores to sell milk, meats, and other perishable items. For customers with less free time, the company will soon finalize drive-in locations where online grocery orders will be brought to the car. (Source: “Amazon to Expand Grocery Business With New Convenience Stores,” The Wall Street Journal, October 12, 2016.)
The move is significant as Amazon’s competition with Wal-Mart Stores, Inc. (NYSE:WMT) intensifies. Wal-Mart had earlier announced its plans to expand online warehouses as a part of increasing its investments in e-commerce. Amazon’s move to open convenience stores now takes the battle further into Wal-Mart’s territory. This expands the market further for Amazon, as there are many people who like to pick up their own groceries. This is likely to provide a big boost to AMZN stock.
However, as the company refines its brick-and-mortar strategy, there are likely to be financial concerns. The competition is huge in the grocery delivery business, and would require big investments. This may weigh on Amazon stock in the short term.
Earlier this week, Zacks Investment Research had upgraded Amazon stock to “strong buy.” Analysts are bullish on AMZN stock due to superior returns over the past year, as well as encouraging revenue guidance. Analysts are particularly upbeat about “Amazon Web Services,” which is the cash cow for Amazon. Currently, this business is generating higher margins than the retail business. (Source: “Why Amazon.com, Inc. Was Upgraded to Strong Buy,” Investor Place, October 10, 2016.)
Amazon has a history of challenging big and established players, and this is another step in that direction. The company has also challenged Apple Inc. (NASDAQ:AAPL) and Spotify, as it has just launched its music streaming service: “Amazon Music Unlimited.”
As investors look forward to another good set of numbers this quarter, they will be judging how Amazon’s strategy will affect its profitability going forward. This will determine the future direction of Amazon stock.