Big Upside for AMZN Stock?
When a stock surges by triple digits, it could be prone to a correction. The case is true for Amazon.com, Inc. (NASDAQ:AMZN) stock. Having more than doubled last year, it started 2016 deep in the red. But more recently, Amazon stock started trending upward again. In just two months, it gained more than $100.00 per share.
Now, I’m going to show you three reasons why the next bull run in Amazon stock could be right around the corner.
One of the biggest advantages to shop in physical stores is that you can get the merchandise instantly. When you shop online, there is always a waiting period before the goods arrive at your door. However, over the years, Amazon has been closing that gap.
You see, the company has built an unrivalled logistics infrastructure in the e-commerce business. In North America alone, Amazon has more than 100 fulfillment centers. This allows it to offer unlimited two-day shipping on millions of items for “Amazon Prime” members.
The company even started offering same-day delivery service to certain areas. As of this April, Amazon Prime’s free same-day delivery serves 27 metro areas in the U.S., covering more than 1,000 cities and towns. (Source: “Prime Free Same-Day Delivery Expands to 11 New Metro Areas,” Amazon.com, Inc., April 6, 2016.)
While offering consumers the convenience of same-day delivery, Amazon is also taking on the entire logistics industry. Bloomberg reported last December that Amazon could be leasing 20 Boeing “767” wide-body freighter jets and buying thousands of truck trailers to increase control over its logistics platform. (Source: “Amazon Said to Mull Leasing Planes to Control Delivery Chain,” Bloomberg, December 18, 2015.)
If Amazon manages to build its own logistics empire, it could not only improve the delivery time on its e-commerce platform, but it could also take market share from industry giants like FedEx Corporation (NYSE:FDX) and United Parcel Service, Inc. (NYSE:UPS).
For those not familiar with the segment, Amazon Payments is an online payment processing service first introduced in 2007. The company charges merchants 2.9% plus $0.30 for each transaction handled by Amazon Payments.
The service not only brings revenue for Amazon, but also deepens the company’s relationship with consumers. People are already making purchases on Amazon’s e-commerce platform. But when they go to other online shopping sites, it would be convenient if they could also use Amazon’s payment service. Essentially, Amazon is trying to provide solutions to a pain point.
You would expect that small online shopping sites won’t really like the industry leader. But with Amazon’s huge customer base, using its payment service might not be a bad idea.
Riveter is a company that sells handbags made by the spouses of U.S. soldiers. It switched from Paypal Holdings Inc (NASDAQ:PYPL) to Amazon Payments this February. According to company founder, Lisa Bradley, approximately 30% of customers chose to pay with Amazon. Previously, only 13% of R. Riveter’s customers went with PayPal. (Source: “Amazon Payments Persuades Small Retailers to Work with ‘the Devil’,” Bloomberg, April 1, 2016.)
Now, Amazon is launching the Amazon Payments Partner Program, hoping to attract more e-commerce platform providers to its payment service.
Bottom Line Improving for AMZN Stock
No matter how great a business is, it has to make money at the end of the day. For a public company like Amazon, investors want to see some earnings after years of fast top-line growth. Luckily, Amazon is now a profitable company.
In its second-quarter 2015 earnings report, Amazon showed the world that it made a $92.0-million profit, or $0.19 per share. The number is small if you compare it to other tech giants’ earnings. Nonetheless, it was enough to spark a rally in the stock. Since that earnings release on July 23 of last year, AMZN stock has climbed more than 25%. (Source: “Amazon.com Announces Second Quarter Sales up 20% to $23.18 Billion,” Amazon.com, Inc., July 23, 2015.)
The best part is that this was just the start of the company’s profitable era. In both the third and fourth quarters of 2015, Amazon posted substantial profits.
The company reports earnings later this month. If things turn out to be better than expected, we might see another rally in Amazon stock.