Amazon.com, Inc (NASDAQ:AMZN) has recently scored wins on multiple fronts. Do these positives make AMZN stock a good buy?
Shares of Jeff Bezos led Amazon (NASDAQ:AMZN) have failed to breach the psychologically important price level of $1000 a share. After advancing by nearly $50 through the first half of this month, Amazon stock pulled back marginally in the last trading session, to close at $987.2 per share. The recent news flow has been encouraging for Amazon bulls. Though, the Amazon stock price hasn't really reflected it. Yet. A mix of wins on multiple fronts, favorable technicals and high short interest have set Amazon stock up for some near-term gains. Here is why we think that the Amazon bears could be running for cover, sooner than later.
AWS scores another win.
AWS, Amazon's cloud segment, has been the biggest driver of Amazon's bottom line. The segment contributed nearly all of Amazon's operating profits in the last quarter and is indeed an important cog in the 'Amazon' wheel. The cloud service provider scored a big win recently, with car manufacturer General Motors (NYSE:GM) choosing Amazon's cloud services provider as its preferred cloud provider.
And, why is this important? The cloud market is a rapidly growing market, with some of the various sub-segments expected to grow at an average annual rate of 23% - 25% over the next few years to pass the $200 billion mark by 2020.
According to Canalys research, Amazon is the dominant force in the cloud infrastructure market, with a market share of 30%, more than 2x that of second-placed Microsoft, which has a 13.8% market share. While General Motors is only another name in a long list of AWS clients, every new customer takes Amazon further ahead in the cloud market. Given the rapid growth in cloud spending and the relatively higher profit margins of Amazon's AWS segment, every new customer addition is a positive for Amazon stock bulls.
Amazon is wooing advertisers away from YouTube.
As the popular adage goes, 'someone's pain is someone else's gain', Amazon is looking to make the most of YouTube's pain. Earlier this year, YouTube was at the receiving end of advertiser's fury when ads were displayed alongside inappropriate or controversial content. With billions of dollars being spent on digital video advertising, Amazon is looking to leverage YouTube's pain. How?
As reported by CNBC sources, Amazon is holding meetings to launch programs for bringing more advertisers to its video platforms. Apart from sharing more insightful data on viewer activity on the video platforms, Amazon plans to pair companies with vetted video producers to create sponsored content, with Amazon taking a share of the deal money. More importantly, Amazon is also focussed on how to prevent inappropriate content from appearing next to ads, which was precisely the pain point for many YouTube advertisers recently.
According to eMarketer, the digital video spending in the US is expected to hit $13.23 billion this year, of which YouTube is expected to take a lion's share. With billions of dollars at stake, Amazon's focus to address pain points of YouTube advertisers is no surprise. With 310 monthly active customers on its video platforms (as of last year), Amazon could rise to become an alternative to YouTube (with 1.5B MAU), which is something advertisers have always been seeking. Even a small pie of this high margin multi-billion dollar ad market could add significant dollars to Amazon's top line as well as bottom line.
Amazon stock technicals and short interest.
In addition to the recent positive news, Amazon stock is also supported by a strong technical chart. Amazon stock price has rallied by over 5% over the last fortnight. The rally has seen AMZN stock breach resistance from the key moving averages; the 20-day, 50-day and 100-day simple moving averages (SMA). The pullback in the last trading session has brought the stock closer to the 100-day SMA, which has been a strong support level for the stock over the last one year. Hence, investors looking to initiate positions should look to buy Amazon stock near the current price levels.
A combination of positive news flow and strong technicals makes now a good time to buy into Amazon stock. With Amazon stock looking set for a rally higher, investors should also take note of the high short interest in AMZN stock. As of the last reporting cycle (data released yesterday for September 2017 end), short interest in Amazon stock had risen to 6.34 million shares, which is close to the 52 week high of 6.54 million shorted shares. With the days to cover rising to a 6-month high of 2.05 days, any rally from the current price levels could be aided by short covering.
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