Lots of Opportunities for AMZN Stock
It’s hard to imagine that a $300-billion company could grow much larger, let alone grow at a rapid clip. But that’s exactly what Amazon.com, Inc. (NASDAQ:AMZN) stock is still doing.
In the past year, AMZN stock is up an impressive 38%. But investors must be asking, what does Amazon have left in its tank to keep the stock on its upward trend? The answer to that is that Amazon has so much going for it that AMZN stock shouldn’t have to work hard to reach new heights.
Here are three reasons why that could happen.
Amazon Web Services
The area that is showing the most growth right now for Amazon is its cloud computing business, “Amazon Web Services” (AWS). In Amazon’s latest reported earnings, AWS sales grew 69% in the quarter over the same period last year, and 70% for all of 2015. (Source: “Amazon.com Announces Fourth Quarter Sales Up 22% to $35.7 Billion,” Amazon.com, Inc., January 28, 2016.) The service now has almost $10.0 billion in annual sales and about one million users. (Source: “Amazon cloud has 1 million users and is near $10 billion in annual sales,” Ars Technica, April 7, 2016.)
So, what exactly is AWS? It’s a service that rents out computing power, data storage space, and networking services as well as providing database and analytics services. AWS launched ten years ago, and over that time many companies have built their online business with it. Big companies are using the service such as Apple Inc. (NASDAQ:AAPL), Netflix, Inc. (NASDAQ:NFLX), Adobe Systems Incorporated (NASDAQ:ADBE), and Pfizer Inc. (NYSE:PFE).
Amazon holds a command in cloud computing, with 36.9% of the market, while Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc (NASDAQ:GOOG) trail far behind with 8.7% and 2.5% of the market, respectively. (Source: “Amazon and Microsoft to Face Off in Cloud Computing Space,” Market Realist, February 9, 2016.)
Competition may be heating up, with Google in particular starting to make a big push into the space, but there’s still lots of growth in the market that Amazon can capitalize on. Cloud computing sales are expected to rise to $27.4 billion in 2016 compared to $14.9 billion in 2014, according to Synergy Research Group. (Source: Ibid.)
Amazon just announced that it’s going to battle with Netflix in the streaming video wars. Prior to the announcement, Amazon offered the video service as part of the “Amazon Prime” membership, which costs $99.00 a year.
Amazon will now offer “Prime Video” on a stand-alone basis for $8.99 per month, which I’m sure will have Netflix shaking a bit since it charges a dollar more. Prime Video’s catalog is growing rapidly and it’s probably at the point where it’s good enough to match Netflix’s, in number and quality—or at least it will be within the next few years.
At a dollar cheaper than Netflix, Prime Video should have no problem convincing customers it’s the better option for online streaming video and that will only benefit AMZN stock.
This is a great move by Amazon. Offering Prime Video as a separate service is another way for Amazon to monetize it beyond the annual subscription of its Prime service. If Prime Video is able to grow its subscriber base the way Netflix has, the service will be a major catalyst for AMZN stock over the next few years.
Amazon wants to take control of its logistics operations, as shipping costs are cutting into profits. In 2015, shipping cost Amazon about $11.5 billion, while shipping revenue was about $6.5 billion. (Source: “Amazon’s shipping revenue and outbound shipping costs from 2006 to 2015 (in million U.S. dollars),” Statista, last accessed April 22, 2016.) To put that into perspective, shipping costs account for 12.5% of sales, up from 10.9% in the same period a year ago. (Source: “Amazon.com Announces Fourth Quarter Sales up 22% to $35.7 Billion,” Amazon.com, Inc., January 28, 2016.)
Amazon has downplayed its ambitions to build its own transportation network, but the company has recently leased 20 Boeing Co (NYSE:BA) “767” cargo jets from Air Transport Services Group Inc. (NASDAQ:ATSG). Amazon has also leased thousands of truck trailers and has even received a license to expand shipping over the ocean. (Source: “Confirmed: Amazon leases 20 Boeing 767 freighter aircraft, continues to expand delivery network,” GeekWire, March 9, 2016.)
If Amazon gets its shipping service up and running, it could act as a major catalyst for AMZN stock. According to Robert W. Baird & Co. analyst Colin Sebastian, Amazon’s global shipping service could become a $400-billion business. (Source: “Amazon Building Global Delivery Business to Take on Alibaba,” Bloomberg, February 9, 2016.)
The Bottom Line on AMZN Stock
Amazon still has tons of growth ahead of it. With AWS, Prime Video, and Amazon Shipping, AMZN stock should have no problem continuing its upward trend.