This Could Send AMZN Stock Soaring
Amazon.com, Inc. (NASDAQ:AMZN) is on fire, with shares of AMZN stock soaring more than 120%. But according to one analyst, this might only be the beginning.
Rob Anderson, an analyst for MKM Partners, sees a lot more upside for the e-commerce giant. According to a report published earlier this week, Anderson sees shares nearly doubling over the next four years. He set his target price at $1,300. (Source: “Amazon’s stock can hit $1,300 in 4 years–MKM analyst,” MarketWatch, December 15, 2015.)
MKM Partners made the bold call as the firm initiated coverage of Amazon stock based on the famous retailer’s dominance and innovation in two key areas: e-commerce and cloud computing.
According to MKM’s Anderson, “Amazon’s North American ecommerce business is growing at more than seven times the rate of traditional retailers in aggregate, while revenue growth for its cloud business, Amazon Web Services, is 13 times the average of large business technology suppliers.” (Source: Ibid.)
Of course, it is better to err on the conservative side, but it is undeniable that Amazon has the potential to dominate the retail sector and beyond. Nomura Securities recently reiterated its “Buy” recommendation on AMZN stock, also raising its one-year price target from $700.00 to $850.00 per share. Nomura is especially impressed by Amazon’s cloud developments, called “Amazon Web Services,” as the main catalyst for growth and for value. (Source: “Amazon.com (AMZN) Stock Price Target Raised to $850 at Nomura,” The Street, December 9, 2015.)
Is this price target crazy? Not really.
Is Amazon.com a $1,300 Stock?
Already by the second quarter of 2015, Amazon surpassed Wal-Mart Stores, Inc.’s (NYSE:WMT) market value after celebrating its 20th birthday. Walmart still has higher revenues ($485.7 billion at the end of fiscal 2014 year compared to Amazon’s $89.0 billion), but Amazon has unparalleled growth potential. The company can cut costs better than Walmart or any other physical store-based retail company.
Moreover, Amazon has seen its cloud computing business gathering strength. Amazon Web Services now includes “Active Directory Cloud Computing.” This means Amazon can start winning customers over from its main cloud rival, Microsoft. Amazon Web Services announced the Active Directory support on its public cloud.
Through its cloud computing services, Amazon is eyeing more customers in a sector with better margins. In December, Amazon extended the Active Directory support on its services. Amazon, which has quickly become the cloud leader, already offers a simplified service compatible with Microsoft’s flagship system, “Single AD.” However, Amazon Web Services is continuing its development and the company has extended an offer for companies wishing to include Active Directory’s most advanced features on the cloud.
Amazon is clearly trying to attract more companies to its now rapidly developing cloud. Microsoft tried something similar with its Azure public cloud product, which offered a native Active Directory integration feature for its customers. Amazon can benefit from this because its technology allows businesses already equipped with Microsoft solutions to consider a migration of their tools to the Amazon platform with minimal disruption.
Amazon’s Active Directory offers and allows the use of a connector to simplify and unify the management of permissions between applications deployed on site and those deployed on its public cloud. This allows users to enter their password to shift between private and public cloud services.
Amazon: Entertainment and Drones
In other developments, Amazon is also venturing into the on-demand entertainment sector, competing with Netflix. Amazon has its own streaming video service, “Prime Video,” which is included in a subscription to “Amazon Prime” ($99.00 per year in the United States, which includes free delivery for Amazon.com purchases and access to digital content, such as electronic books or music).
Prime Video claims to have tens of thousands of films and TV series in its catalog from all the big studios and media companies. Like Netflix, Amazon will also produce and offer its own original content. Its new series, Transparent, about a transsexual father, is the most famous example.
Then there are the drones coming to Amazon’s “Prime Air.” Amazon is very serious about deploying deliveries by drones, which will propel the company into a new dimension of retail domination. In 2014, Amazon filed for a patent for an autonomous drones delivery system and the project is taking shape faster than anyone could have anticipated.
In a new video posted on YouTube, famous media and TV host Jeremy Clarkson introduces the technology. The drone’s design and bright colors do not go unnoticed. It takes off vertically and can fly up to 120 meters. (Source: “Amazon Prime Air,” Amazon.com YouTube channel, November 29, 2015.)
The buyer can specify a landing area where the package can be delivered. The machine is equipped with a system that allows it to detect air and avoid obstacles autonomously. These models are currently being tested to adapt to different flight situations. The delivery will take approximately 30 minutes and will involve packages weighing less than five pounds.
Amazon has also been active in all the corollary activities related to drone delivery, developing the concept beyond the actual technology, lobbying government authorities, and securing permission to test its drones in the U.S.
Amazon envisions Prime Air becoming a substitute—if not an outright replacement—for the delivery truck, much to the chagrin of couriers like FedEx and UPS. CEO Jeff Bezos said technical problems are close to being resolved, while only regulatory ones are standing in the way. (Source: “What Amazon Prime Air Could Look Like If Regulators Approve,” ABC News, November 30, 2015.)
Drones can fly along a specific path, guided by GPS. Prime Air will require them to navigate the urban landscape without interfering or hitting other flying objects like birds, other drones, or humans along the delivery path.
The Bottom Line on AMZN Stock
The combination of drones with Amazon’s “Dash,” a new product unveiled last March that enables customers to order frequently replaced items from toilet paper to laundry detergent via a product-labeled Wi-Fi-connected button, makes Amazon’s growth possibilities too large for the mind to contemplate. No longer will the last sheet of toilet paper at night cause a fright; just press the Amazon Dash button and a drone will appear from the sky, as if an angel, with what will seem to be the solution to all your problems in that instant.
With innovations like these, $1,300 is not out of the question for AMZN stock.