One Reason to Be Bullish on AMZN Stock
One good piece of news after the other has made Amazon.com, Inc. (NASDAQ:AMZN) one of the best-performing investments of this year. Lately, Barclays has upped its price target for AMZN stock to $850.00.
Now some Amazon.com stock bears might scoff. The high price multiples, however, have investors worried that the stock might tank any day. But Barclays’ price target might not be so crazy after all. Here’s why…
Is Amazon.com an $850.00 Stock?
Amazon is undertaking a mutualistic relationship with Chinese search engine Baidu to make a place for itself in the fastest-growing Internet markets in the world. (Source: “Amazon Partners With Baidu To Launch Its Fire Tablet In China,” TechCrunch, December 7, 2015.)
Amazon just had its best ever holiday sales season and as expected, the “Kindle Fire” remained its top-selling product in the U.S., breaking all previous records. Amazon is once again launching the newest installment of its Kindles in China and this time, the giant is partnering with Baidu.
The Kindle Fire tablets will run Baidu as the default search engine and they will allow users to download “Android” apps from Baidu’s “91Wireless” app store, which is one of the largest Android app stores in China. The tablet will also be streaming videos from China’s second-biggest YouTube-like service, iQiyi, which competes with Alibaba’s Youku Tudou, China’s largest video streaming service.
In a country where virtually all American Internet companies, including Google and Facebook, are predominantly banned, pay attention to how Amazon has chosen to partner with the second-biggest player in the Chinese online scene, Baidu, which competes directly with Chinese market leader Alibaba Group Holding Limited (NYSE:BABA), or “China’s Amazon,” as we like to put it.
According to Ericsson’s latest Mobility Report, China is expected to lead the world in Internet data usage over the 5G LTE network. The total Chinese market is expected to hit 1.2 billion users in the next five years. (Source: “Ericsson Mobility Report,” Ericsson, November 2015.) Naturally, this country will become the biggest target market for Internet companies and Amazon has found the right time and the right partner for its product offering.
Unlike Apple, which sells to the affluent Chinese, Amazon stands to win customers across the board. In a country where cheap knockoffs are ubiquitous, Amazon’s low-priced devices face little threat. Take, for instance, the basic Kindle, which is now selling for only $50.00. This basic but powerful device has been a head-turner, even for those who weren’t looking to buy a tablet this holiday season.
Amazon’s ingenious strategy to garner higher sales is to use high volume instead of high price. The company undercuts competitors to offer products at very low margins. For some, the strategy is questionable because it has been returning losses for the company. For others, the strategy has worked, as the company continues to expand its stronghold over the online media industry and in the process, it keeps revealing stellar returns via AMZN stock.
Amazon knows that full control over the Chinese Internet space will be next to impossible, but that doesn’t stop it from creating a niche for itself. By partnering with Baidu, Amazon will be able to use its devices to throw in its own content here and there and in turn, reach out to Chinese consumers who remain underexposed to Amazon’s services amid stiff competition from the two top Chinese e-tailers, Alibaba and JD.com.
The Bottom Line on AMZN Stock
Amazon is a well-managed company, well-placed in the fast-growing Internet services industry and it is strategically expanding its international foothold. The company has its hands dirty in almost every form of hardware technology, most of which are doing exceptionally well in terms of sales. In addition, its software side is growing strong with the “Amazon Web Services” (AWS), which remains the most highly valued Amazon product.
Rest assured, AMZN stock is poised to be a solid growth play and China is the second leg of that expansion.