- Amazon is quickly building out an ecosystem of sorts, which is driving its retail revs higher.
- AWS is at the forefront of the cloud market. Going by the recent client acquisitions, the leading cloud services provider isn't resting on its laurels.
- Lastly, we are headed for a strong finish to the year, as Amazon stock will ride the tailwinds of a strong holiday shopping season.
Amazon.com Inc. (NASDAQ:AMZN) is off to a great start to shopping season 2016. Starting with the record (Non-Prime day) number of Prime subscription sign-ups on the launch day of The Grand Tour, over a week ago, to the strong sales in the just concluded Thanksgiving weekend and the latest announcement of onboarding shipping giant Matson onto its cloud service, Amazon is clearly firing on all cylinders. Amazon's recent focus on live sports streaming is yet another confirmation of the fact that Amazon is chasing content in order to differentiate it online streaming service and onboard more people onto the Amazon Prime bandwagon. Why? Because data show that Amazon prime members outspend non-prime customers by a significantly huge margin, which drives Amazon's retail sales higher. Well, while it appears Amazon is focussed on a multitude of products, the one goal which binds these efforts is pretty clear: Growth, growth and more growth. It's this constant focus on growth which has driven AMZN stock higher over the years. Amazon stock price is up 18X in the last 10 years, and over 500X (split adjusted) since its IPO. Is Amazon stock still a worthy buy? The answer lies in the bigger big question whether or not Amazon can maintain its growth? Can it?
Amazon Has A Clear 2-Pronged Growth Strategy And.....It's Doing Wonders!
Amazon has a clear 2-pronged growth strategy. Entice as many people as possible to buy from amazon.com and onboard as many customers as possible onto its AWS service. And well, this twin focus is leading to strong results. For the first 3 quarters of the current fiscal (FY 2016), Amazon has reported topline growth of nearly 30% YoY with revenue over the quarters reaching a monstrous $92.25B. If you thought that is good, consider this: AMZN revenue growth ranged from 19% to 27% over the last 4 years. In short, Amazon has not just been growing, but it is also growing faster and that too on an increasing revenue base. And there are reasons to believe that the company can continue to maintain strong growth in its e-commerce as well cloud divisions. (See also: Why Amazon.com (AMZN) Stock Is A Strong Buy Going Into The Holiday Season?)
AWS Will Be A Significant Contributor To Overall Amazon Revenues Hereon
AWS revenue came in at $3.2B in the latest quarter, putting the AWS contribution to overall AMZN revenues at just under 10%. Analysts anticipate that AWS will clock around $12B in revenues for FY2016, accounting for over half the public cloud market share. In a separate report, IDC forecasts public cloud services spending to grow at a CAGR of over 20% through 2020. With Amazon leading the pack of public cloud service companies, expect the company to generate a bulk of the revenues resulting from this spending. All in all, Amazon's AWS division isn't slowing down anytime soon given the tailwinds this segment is riding.
As a corollary of the above, the superior top line growth and profit margins of the AWS business will also begin to have a more significant impact on Amazon's overall growth and profit margins as the AWS business becomes a larger and larger portion of the overall business. (See also: Amazon.com Inc Could Gain Big By Acquiring Souq.com)
Amazon's Growing Ecosystem Will Drive Future Growth
Amazon has had a stellar start to its holiday season sales. Riding on the tailwinds of huge sales over Thanksgiving, Black Friday and Cyber Monday, Amazon has had a great time selling its own devices. Quoting from a recent Business Wire release:
Millions of Echo Dot devices sold since launch—sales of Amazon Echo family of devices up more than 7x over last year’s Cyber Monday
Sales of Amazon Fire TV devices up over 2.5x this Cyber Monday—continues to be the #1 streaming media player family in the U.S. across all retailers
Fire Tablets sales up 2x this Cyber Monday—best holiday shopping weekend ever for Fire Kids Edition
The sales of Amazon devices leads to multiple benefits for Amazon. Apart from the fact that these sales directly contribute to Amazon revenues, these devices also help to accelerate the adoption of 'Alexa' Amazon's answer to Apple's Siri and Google's assistant. The more you interact with Alexa through any of these devices, the more Amazon knows about you. And well, data is money in the internet world. Also, given the seamless experience these devices provide for ordering your products directly from Amazon, higher e-commerce revenues are a likely result of the growing footprint of the Amazon ecosystem. Quoting from Forbes review of the Fire tablet:
One of the most natural features for using Alexa on a tablet is the ability to order and reorder items from Amazon.com. So when you tell Alexa to reorder Pampers diapers, it will pop up a visual card of the item you’ve ordered in the past. And you can simply instruct the assistant to buy the diapers and ship them to your door.
The end result of most of Amazon's hardware efforts has been to increase repeat business for Amazon's e-commerce operations. And, Alexa's presence on Amazon's hardware devices just makes that easier/smoother. More device sales lead to more people onboard the Amazon ecosystem, which will fuel Amazon's e-commerce growth in the future. And that's why these numbers - 7X Echo sales, 2.5X Fire TV sales, and 2X Fire tablet sales - could add a lot to Amazon's growth trajectory.
Amazon stock has been on a tear generating over 500X returns since its IPO. A growth-focussed strategy has been the driving force behind the rise of AMZN stock. The increasing footprint of the Amazon ecosystem, a leadership position in the rapidly growing cloud business and a clear focus on driving Prime membership growth will ensure Amazon can sustain high growth rates well into the future. Hence, AMZN stock makes a perfect fit for growth-seeking investors with a long-term investment horizon.
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