Why India Is Amazing for AMZN Stock
Over the last decade—a decade which Amazon.com, Inc. (NASDAQ:AMZN) spent crushing brick-and-mortar retail stores—there was a clear trend in the value of Amazon stock: up and to the right.
The share price exploded as rival after rival fell prey to the company’s successes. AMZN stock notched gains of 1,865% and made its investors happy.
However, some analysts wonder what will happen if the retail business is fully conquered. Would Amazon declare its mission accomplished and become a boring old income stock? It is an unlikely proposition, especially because AMZN stock is pretty expensive.
The share price is hundreds of times more than the company’s per-share profits, meaning that investors want to see more growth. They think Amazon-the-company will eventually grow Amazon-the-stock, which leaves us with one question: Where will this growth come from?
The answer may lie halfway around the globe. Namely, in India.
Amazon is now starting to suck up the oxygen in India’s e-commerce sector. It is nipping at the heels of the local market leader, Flipkart Internet Private Limited, and is investing heavily to win in this market. (Source: “Jeff Bezos Invests Billions to Make Amazon a Top E-Commerce Player in India,” The Wall Street Journal, November 18, 2016.)
With more than 1.3 billion people and a burgeoning middle class, India represents one of the biggest markets in the world. Think about it: AMZN stock became what it is today based on the size of America’s consumer market. We have about 325 million people in the United States.
Even considering the extra 35 million in Canada, there is no comparison. Of course, the average Indian is far less wealthy than the average American, but that won’t always be the case. India’s economy is one of the fastest growing in the world, and living standards are soaring.
Amazon knows these truths.
Its CEO, Jeff Bezos, is a genius at making money for his shareholders, mostly because he knows how to spot value. India’s massive population is valuable and Bezos knows that. He knows it could help AMZN stock repeat the 1,865% gains it made during the last decade, so he’ll raise hell or high water to win market share from his competitors.
He’s even tweaked the way Amazon operates. For instance, Amazon added a cash-upon-delivery option to lure in Indian customers who don’t have bank accounts. Those without Internet can also phone in their orders and have them delivered via motorcycle courier. It may sound strange to us, but Bezos doesn’t care how it sounds. He cares if it works.
As someone who writes about the tech industry every day, I can tell you that Bezos’s instinct is dead on. I think he’s going to conquer the Indian market, thus ensuring another decade of stellar growth for AMZN stock.
Don’t just take my word for it, though. Bank of America Corp (NYSE:BA) crunched the numbers and it sees “potential for Amazon to emerge as the number one ecommerce platform in India.” Locals analysts agree, saying that Amazon’s insurgency is “significant” in impact. (Source: Ibid.)
But more to the point: every big tech firm is on the same page. They see the writing on the wall.
Why else would Apple Inc. (NASDAQ:AAPL) stock plunge when its China division underperformed? Or why would Mark Zuckerberg try to launch a free Internet campaign for rural parts of India?
It is because they know that rising wealth in India and China means new customers. And new customers equal higher share prices. This is the simple equation that has Silicon Valley CEOs on 16-hour flights to the other side of world. They know it is good business.