- Amazon beats the competition to come out on top with regard to Black Friday and Cyber Monday sales.
- Amazon Prime Air- a drone deliveries service- is set to allow Amazon to increase its lead in 2016.
- Their insatiable appetite for growth and investments will bode well for Amazon stock in the long term.
Amazon (NASDAQ:AMZN) is the world's largest ecommerce retailer and sue to their innovative practices, have set the trends for competitors to follow. And in a year when consumers are more open to buying online, Amazon has been able to grow.
Despite big marketing campaigns from American retail giants such as Walmart (NYSE:WMT), Amazon still came out on top with regard to Black Friday and Cyber Monday sales. The news was well received by the market which rewarded Amazon with a boost in stock price.
Historically, Black Friday and Cyber Monday performance has provided investors with two key indicators:
- Firstly, it shows which retailer consumers have affinity with. This gives an indication of the brand loyalty level of a retailer.
- With heightened competition during Black Friday and Cyber Monday, retailers which are able to 'pull ahead' are likely to have an exceptional marketing team which will serve them well during the incoming year. Therefore, investors have some indication of which retail stock is likely to provide the best ROI.
Below is an analysis of the reasons behind Amazon's domination during this key period, and what investors can expect in 2016.
The 'Trojan horse' effect
Most major retailers have the mentality of using their large advertising budgets to push sales. Due to the fact that they are firing off several promotions in the hope that some bring home a mother load of revenue, their method is relatively inefficient.
On the other hand, Amazon has the strategy of undercutting competitors- especially when it comes to desirable consumer items. This allows them to add revenue in two ways:
1) They are able to leverage their high-traffic homepage to boost sales and add revenue to their bottomline.
2) Electronics such as the Kindle fire range of tablets come with Amazon services software preinstalled. By placing their app offerings front and center, they are able to boost sales of books, movies, and music. Moreover, the 'Special offers' version of the Kindle ereader displays ads, and this is another avenue which Amazon uses to boost sales.
Amazon's dominance during Black Friday and Cyber Monday is partly due to the fact that when Americans take out their cards to shop online, one of the first sites they visit is Amazon. A recent study showed that 40% of Americans visit Amazon first on their online shopping journey. When one considers the number of competing sites out there, this percentage is highly impressive.
I am going to stick my neck on the line and state that Amazon will enjoy a record-breaking year in 2016 with regard to revenue figures.
I make this bold statement taking the following into account:
1) Amazon Prime Air is set to launch in 2016. This will speed up the delivery time for goods, and allows Amazon to offer perishables such as fresh produce. Coupled with Amazon's gargantuan economies of scale, they should be able to better compete with 'brick-and-mortar' retailers.
2) Amazon's performance during the Christmas shopping period indicates strong sales momentum going into 2016. And in an industry where credibility, speed of delivery, and brand power is everything, Amazon is well placed for a bumper 2016.
3) Amazon is currently in talks with Boeing about leasing cargo jets for an air-cargo venture. This will allow Amazon to be in greater control of deliveries. Moreover, this could potentially allow them to expand their “Fulfilment by Amazon” venture, and maybe even launch their own delivery service to compete with the likes of DHL. Consequently, Amazon would be able to add an additional revneue stream.
Financial & Stock performance
Amazon continues to go from strength-to-strength and this is exemplified by the 'hockey-stick' shape of Amazon stock graph over the past few years.
Over the course of 2015, earnings increased by an impressive 117.89%, and coupled with their future-focused investments, they have been rewarded with a 116.5% jump in stock value. It is worth noting that although they have strong momentum, this performance is unlikely to be repeated in 2016.
In conclusion, Amazon's strong Black Friday and Cyber Monday sales indicate that they are the retailer to beat in 2016. And with more people choosing to make purchases via e-commerce, Amazon is well positioned to capitalize on this growth factor and add more revenue to its topline. Amazon stock is a good long option.