2 Reasons to Be Bullish on Amazon Stock
Amazon.com, Inc. (NASDAQ:AMZN) stock has been growing from strength to strength as the Jeff Bezos-led company comes out fresh from its success in the holiday-quarter sales.
Amazon is also on better footing with President Donald Trump after the company announced its plans to create new jobs in the United States. AMZN stock has already gained around 10% this year, despite the uncertainties surrounding the markets.
The company had reported a decline in profits in its third-quarter results, which pushed Amazon stock lower. The reason was the company’s plans to invest heavily in new fulfillment centers and video content.
AMZN stock had also suffered on account of weak revenue guidance for the fourth quarter. The company guided for net sales between $42.0 billion and $45.5 billion. As investors wait for the December-quarter results to be announced on Thursday, let’s look at the top reasons to be bullish on Amazon stock.
Amazon had already made clear its plans to enter the logistics business to speed up its deliveries. With its focus on customers, Amazon has been taking initiatives to reduce the delivery time for its goods. The company ensures greater delivery speeds and supply chain capacity for its customers through a dedicated network of 4,000 truck trailers to increase trucking capacity.
Amazon has further announced its plans to build a centralized air cargo hub in Kentucky to support its growing fleet of “Prime Air” cargo planes. Moreover, the company expects to create more than 2,000 new jobs at the site. Amazon had earlier announced its plans to create 100,000 jobs in the country, which had buoyed Amazon stock. (Source: “Amazon to Create 2,000 Jobs at New Air Cargo Hub in Kentucky,” Amazon.com, Inc., January 31, 2017.)
Last year, Amazon entered into agreements with two carriers to lease 40 dedicated cargo planes that would transport packages from one warehouse to another, to support “Amazon Prime” members with fast and free shipping. At present, 16 of those planes are in service for Amazon customers. The company has made it difficult for customers not to be members of its Amazon Prime service, and the growth in Amazon Prime membership has been a great boost for AMZN stock.
With its promise of delivering anything, anywhere, anytime, the company not only thought of the out-of-the-box idea of warehouses that float in the air, but it was awarded a patent for it too, last year. These “airborne fulfillment centers” would act as a launchpad for drones that would take only a few minutes to deliver packages.
Amazon has also been granted another patent for its “Road Guidance System,” which points to the possibility of the company getting its own self-driving vehicles.
The company has not left out the overseas shipping industry, with reports coming in that Amazon has registered to become an ocean freight operator in the United States. A San Francisco-based startup, Flexport, Inc., found a related document on the web site of the U.S. Federal Maritime Commission, which listed Amazon China as an entity that could provide transpacific transport services. (Source: “Is Ocean Freight Amazon’s Next Business?,” Forbes, January 14, 2016.)
With Amazon’s efforts in the logistics business, no retailer appears to come even close to what Amazon is doing. Brick-and-mortar retailers, which are already struggling with their sales, have still a long way to go to catch up with Amazon in online sales, and they will have a hard time beating the company in making faster deliveries.
After stocking all the goods in the world and speeding up its deliveries, the best thing that Amazon.com has done is put a device in the hands of customers that make it super-easy for them to order anything from the comfort of their homes.
“Amazon Alexa,” the company’s smart personal assistant, powers the company’s voice-activated speakers “Amazon Echo” and “Echo Dot.” As reported by the company in its December 2016 press release, Alexa devices topped the Amazon best-seller list in the last holiday season. Sales of the Amazon Echo family of devices was up by more than nine times over the previous year’s holiday shopping season.
Echo Dot turned out to be the best selling, most gifted item on Amazon.com, with millions sold worldwide since the product’s launch. Amazon stock had gotten a big boost from this best-ever holiday results.
At the Consumer Electronics Show (CES) this year, the popularity of Alexa was evident from the number of home electronics and appliance companies that announced the integration of Alexa with their products.
With customers loving Alexa’s convenience, Amazon is ahead of other technology companies in the race for domination of the home automation market, which puts AMZN stock in a strong position.
Although other companies like Google parent Alphabet Inc (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL), and Microsoft Corporation (NASDAQ:MSFT) may pose challenges in the future with their own versions of digital assistants, Amazon is likely to be the place where most customers go to buy the stuff they need.
Bottom Line on Amazon Stock
Amazon is trying to be the store that provides anything, anywhere, anytime, and no company appears to be even close to this vision. This is a prime reason that AMZN should continue its upward march.
Amazon stock has gained about 40% over the last year as compared to 20% returns posted by the broader S&P 500 index in the same period. Investors understand the huge growth potential of the company, and despite the big investments that Amazon is making at present, Amazon stock is expected to keep shining.