Can Jeff Bezos Lead AMZN Stock Even Higher?
Considering that Amazon.com, Inc. (NASDAQ:AMZN) just finished one of its best years on record, many investors are wondering if the company can sustain its momentum. From the way Jeff Bezos has been playing his cards, I’d say that AMZN stock still has room to run.
There’s no “Magic 8” ball we can use to decipher the future, but we can record all the tailwinds that buffeted Amazon stock higher last year and see if they’re likely to continue. If they are, it’s possible investors could stay bullish on the company.
Historically, the market has given Jeff Bezos a lot of leeway. He’s had enormous freedom in building a great business that doesn’t face immediate pressure for profits. Most CEOs would love that setup, but they might not be as crazy about the other side of the equation.
Amazon is constantly under pressure to scale up its size—that’s why markets let it operate at a loss. Unless Jeff Bezos is delivering jaw-dropping increases in revenue, volume, and product expansion, he has to obey the normal laws of financial markets.
Does he have a plan to keep it going?
The Master Plan of Jeff Bezos
By and large, this year’s bullishness on Amazon stock was driven by the rampant success of “Amazon Web Services,” the firm’s cloud computing arm. AWS became a one-stop-shop for anyone who needed to leverage the power of the Internet without investing in hardware themselves.
Need to launch a virtual machine? Need to back up your files or deploy a web application? AWS is one of the vendors you would approach, especially because they are the largest provider of cloud computing services (by a mile).
In the last quarter, AWS made more than $521 million off $2.09 billion in sales. The segment’s margins were impressive enough to pull the entire company into the black. (Source: “Amazon.com Inc. Form 10-Q Filing,” Securities & Exchange Commission, October 23, 2015.)
In fact, Amazon turned two consecutive quarters of positive earnings off the strength of AWS. Could that trend continue through 2016? It’s looking very possible.
Take the “Internet of Things,” for example. IoT has inflamed the entire technology industry with the idea of connecting regular household products to the Internet. Developers are desperately building new apps to support the trend, causing a surge in demand for cloud computing services.
AWS should benefit immensely from the IoT.
Another major tailwind is product diversification. Amazon is known to most consumers as the e-commerce giant where you can buy almost anything, but Jeff Bezos has a significantly larger vision. He wants Amazon to offer virtually everything.
Bezos wants Amazon to challenge Netflix, Inc. He wants it to challenge Uber’s new delivery service, which can bring takeout food right to your doorstep. He wants to eliminate music streaming services like Spotify and replace it with an Amazon alternative.
In the same way that AWS provides everything businesses need for cloud computing, Jeff Bezos would like Amazon to become a one-stop-shop for the world, a digital superstore where everything is in stock, all the time.
The Potential for Amazon Stock
How can one company take on so many missions? Under normal circumstances, with an average company, this type of diversification would look haphazard and ill-fated. But like I said, Amazon is exceptional because it is judged by a unique set of metrics.
The company is offering this multitude of services through its “Amazon Prime” membership. Prime is the window into Amazon’s consumer wonderland, but the company doesn’t disclose how many subscriptions it has. Estimates peg the number close to 40 million paid users. (Source: “It Has 40 Million Subscribers. Now Amazon Prime is Eyeing the Competition,” Fast Company, July 9, 2015.)
In any case, with the variety of Prime services continuing to grow, I can’t see a reason for Amazon’s growth to slow down. Jeff Bezos’ master plan is working like a charm.
All of which is bullish for AMZN stock.