Here’s Why I’m Bullish on AMZN Stock
While the U.S. stock market remained flat overall in 2015, it was a great year for investors of Amazon.com, Inc. (NASDAQ:AMZN) stock. With Amazon’s stock price surging as much as 117.8% through the year, the e-commerce giant performed much better compared to traditional retailers such as Target Corporation (NYSE:TGT) and Wal-Mart Stores, Inc. (NYSE:WMT).
The question now is that after an amazing year, can the momentum in Amazon’s stock price continue in 2016? I believe the answer is, yes. Here’s why.
AMZN Stock: Wide Economic Moat
First, let’s take a look at Amazon’s competitors in the e-commerce business.
eBay, Inc. (NASDAQ:EBAY) is not what it used to be anymore and traditional retail companies are not even close compared to Amazon’s presence in online shopping. Chinese e-commerce giants, such as Alibaba Group Holding Limited (NYSE:BABA) and JD.Com, Inc. (NASDAQ:JD) are yet to expand to the West in a substantial way. Moreover, Amazon has been building a wide moat that can protect itself from any new entrant in the business.
The moat, in part, comes from its logistical infrastructure. Consumers shopping online want to get their goods delivered in a timely fashion without costing too much. Therefore, companies that offer fast and inexpensive shipping are bound to win. Amazon has certainly become the winner here: it has more than 100 fulfillment centers in North America and has expanded its “Prime Free Same-Day Delivery” to more than 750 cities and towns in the U.S.
Mind you, the company is not standing still. After building warehouses, Amazon could build its own shipping network as well. It was reported that Amazon was considering leasing 20 “Boeing 767” wide-body freighter jets to help the company gain more control over its logistics platform. (Source: “Amazon Said to Mull Leasing Planes to Control Delivery Chain,” Bloomberg, December 18, 2015.)
The company is also buying thousands of Amazon-branded truck trailers to speed up shipping from its fulfillment centers to sorting centers. Having its own fleet of trucks and jets would give Amazon more control over its shipping compared to using third-party delivery companies.
In case you are wondering how Amazon did during the recent holiday season, it did absolutely phenomenal thanks to its premium membership, “Amazon Prime.” In the third week of December alone, more than three million new members signed up for Prime. Moreover, compared to the previous year, there were over 200 million more items shipped for free with Prime. (Source: “Amazon Celebrates a Record-Setting Holiday for Prime, Amazon Original Series and Amazon Devices,” Amazon.com, Inc., December 28, 2015.)
Not only did Amazon have a record number of items shipped worldwide with Amazon Prime, but the company also reached a new record in video streaming. For those not in the know, Amazon Prime members get free unlimited access to tens of thousands of movies and TV episodes on “Prime Video.” This holiday season, Prime members doubled their viewing hours of Prime Video titles compared to the previous year and also made Amazon’s original series The Man in the High Castle the most watched TV season on Prime Video by 4.5 times.
Note that Prime members tend to spend more and also shop more frequently on Amazon.com than non-prime members. Therefore, with millions of new members joining the program, Amazon stands to make more money. (Source: “Amazon Prime Hits New Highs,” Consumer Intelligence Research Partners LLC, January 27, 2015.)
The Bottom Line on AMZN Stock
In today’s world, there are two important trends: growing demand in online shopping and increasing popularity in on-demand video streaming. Luckily, Amazon manages to fulfill consumers’ desires on both fronts. With Amazon’s growth engine running strong, 2016 could become another great year for AMZN stock investors.