Amazon Raking in Cash in a Way You Wouldn’t Guess
Amazon.com, Inc. (NASDAQ:AMZN) has been threatening traditional retailers for years, as the e-commerce platform keeps taking more and more of the market share from traditional brick-and-mortar stores. Owners of AMZN stock have profited handsomely as a result.
First on the list of frightened retailers are the book publishers, whose business position has been encroached on by the online book vendor. Amazon has leveraged the small size of books and the ease of shipping them to turn itself into the world’s largest online vendor of digital and printed books.
But far from being complacent in its position as the world’s premier e-commerce site, Amazon has embarked on a far lesser known business plan, one that could have profound effects on Amazon’s stock price forecast. This development has been a long time in the making and is likely to be at the forefront of Amazon’s aggressive plan to take an even larger market share than it already enjoys.
Amazon has been transforming itself as a cloud computing provider and it takes no stretch of the imagination to believe that this could easily cause the AMZN stock price to skyrocket if Amazon is successful.
Amazon’s Focus on Cloud Computing
The “Internet of Things” (IoT) is a growing phenomenon. Those businesses that seize upon the opportunity to fill in the blanks in this current tech environment will be the ones to survive. Enter Amazon and cloud computing.
Amazon first dove into the cloud computing market quite some time ago in 2006. Since then, it has grown that side of its business to serve more than one million customers annually, with revenue totaling more than $7.3 billion. (Source: “Amazon Jumps Into Internet Of Things Frenzy With New Cloud Platform For Devices Like Cars,” Forbes, October 8, 2015.)
Amazon Web Services (AWS) functions by connecting different objects to devices, from cars to cell phones and even solar panels. It then processes, stores, analyzes, and later carries out functions based on the huge amounts of raw data produced by these devices connected through the Internet.
Now, I don’t think I really have to explain why the revenue-generating potential of these services is so easily recognized by companies. Information is key to understanding markets and Amazon collects it and produces meaningful conclusions with which its clients create revenue or expand their business models. It’s pivotal to market success, to say the least.
AMZN Stock: Here Are the Issues for the Future
While all this sounds exciting, the following remaining questions should not be ignored: can Amazon focus on creating a technological “ecosystem” with which to indirectly maintain its user base? And will the e-commerce giant actively work to deter third-party developers that try and fill in the cracks between AWS?
Forget the other cloud computing giants like Microsoft Corporation and Alphabet Inc; Amazon has effectively left them stuck in second gear. In fact, many of the biggest market research companies consider Amazon’s AWS to be the most important service in the cloud computing market. Few people know this, but Amazon now possesses ten times the infrastructure and cloud computing capabilities of its next top 14 competitors combined! (Source: “Amazon’s Cloud to Rain On IBM, Cisco,” Barrons, October 13, 2015.) No, that’s not a typo or an exaggeration. Amazon is simply that dominant in the cloud computing sphere. Plus, AWS is highly profitable, unlike some other similar ventures by other big companies.
But Amazon itself has been no stranger to this approach and hype; more than one of its previous projects on which all hope was seemingly pinned fell completely flat on its face. However, AWS is not among them. It is an absolute money-making machine and it provides uplift for Amazon’s stock price forecast.
Don’t believe me? Consider the following.
Sales of Amazon’s AWS soared by 81% in the second quarter of 2015, hitting $1.8 billion, while total operating revenue surged fivefold, hitting $391 million. (Source: “Now Amazon is going after Microsoft and IBM with new service,” Business Insider, October 7, 2015.)
Of course, the cloud computing market is still very much at an early stage, so approaching Amazon stock with a fair bit of caution is prudent. Having said that, it would not be a stretch of the imagination to call Amazon the “up-and-coming Google of cloud computing.” If the latest moves by Amazon are a good signal, this could seriously be just the beginning of AWS and the start of a sky-high rise in the AMZN stock price through 2016.
If Amazon can avoid the pitfalls that bogged down Microsoft in its early cloud computing efforts, Amazon could have the winning formula to succeed in this market niche. Microsoft made the mistake of attempting to leverage its product offerings in cloud computing by using its market clout. The end result was a federal antitrust case, as well as the company being accused of purposely causing rival web browsers to malfunction on “Windows” operating systems.
The Bottom Line on AMZN Stock
It’s tough to say with any certainty where cloud computing will go, but if you’ve been paying attention to the arguments put forth above, Amazon’s stock price could absolutely surge if the company’s efforts continue to be fruitful.
Despite questions of possible monopolistic practice issues, the company’s management have correctly brought up the fact that cloud computing is inherently difficult to create a monopoly over. As a result, potential investors should not focus too much on this issue.
What Amazon will need to concentrate on is expanding partnerships with small-sized companies that develop value-added services for AWS. By working with the competition, rather than against it, a lesser path of resistance could be found, along which Amazon’s stock price could soar to new heights.