With Amazon.com Inc Set To Rule The Holiday Season, Is Amazon Stock A Buy?

Amazon stock could move even higher if Amazon.com Inc delivers during the holiday season.

With Amazon.com Inc Set To Rule The Holiday Season, Is Amazon Stock A Buy
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Shares of Seattle based eCommerce giant Amazon.com Inc (NASDAQ:AMZN) have rallied by over 50% this year. This is despite Amazon's profit declining by 27% in the first nine months of this year. Amazon had missed massively on its earnings expectation in the second quarter. While the eCommerce giant did deliver a beat on the bottom line in the third quarter, EPS was in line with the same quarter last year. The strong rally in Amazon stock price and a huge decline in profitability has pushed already high Amazon's PE (ttm) multiple from 170x in the beginning of the year to 285x. Given this astronomical valuation and decline in profit, why should you buy Amazon stock now? Well, if you go by latest industry reports Amazon is all set to rule the coming holiday season beginning with Black Friday sales next week.
AMZN stock chart

Amazon.com Inc is providing aggressive discounts going into Black Friday sales.

With Black Friday around the corner, Amazon has already started discounting its products to entice consumers. Yesterday Amazon gave a sneak peek into the upcoming BlackFriday deals. Black Friday will feature more than 30 Deals of the Day and thousands of Lightning Deals. This includes $20 off on Echo Dot and $30 off on Echo Plus devices. Last year too, Amazon had provided aggressive discounts on its Echo line of devices including free Prime membership.

The eCommerce giant wants its Echo devices to find a place in your home as it could drive its eCommerce sales higher. Analysts estimate Alexa enabled devices could provide $10 billion boost to the company's eCommerce sales over the next few years. Whole Foods which Amazon acquired for $13.7 billion, announced price cuts on several products for its Prime members including on Thanksgiving-related items like Turkey. The aggressive discounting is likely to drive revenue higher, however, the bottom line will take further hit.

Holiday season online sales likely to top $100 billion.

A report by Adobe Digital Insights estimates that Holiday sales this year will top $100 billion. ADI predicts online holiday sales will reach $107.4 billion, which is a 13.8% increase from the same period last year. While the online sales during the holiday season has been slowing, it continues to grow much faster than overall retail. The Thanksgiving weekend which includes Black Friday and Cyber Monday is expected to account for $19.7 billion in online sales. Over the last few years, Cyber Monday has overtaken the Black Friday in total online sales. This year, online sales on Cyber Monday is expected to grow by 16.5% this year to $6.6 billion, higher than $5 billion online sales expected on Black Friday.

us holiday season online sale growth

Amazon is likely to show strong growth during this period. SunTrust Robinson Humphrey expects Amazon to corner over 50% of the total online sales during the holiday season. Amazon's ever-broadening product selection and the popular shift toward online shopping will lead to big profit for the e-commerce giant. Earlier, Amazon had posted a strong performance during its Prime Day sales in July. Prime Day sales jumped 60% from last year. In the third quarter, Amazon had reported revenue growth of 33.7%.
AMZN revenue chart

A strong performance by Alibaba during the recently concluded Singles Day sales is also giving investors high hopes. Alibaba generated a mind-boggling $25.3 billion (168.2 billion yuan) in sales in just one day, a 39% increase from the previous year. This not only shows the economic strength of China but also highlights the trend towards online shopping.

High margin segments could drive Amazon stock even higher.

eCommerce continues to remain a strong revenue growth driver for Amazon, though it is not highly profitable. But Amazon has several other business segments including AWS and advertising which could generate huge profits. Analysts continue to remain bullish on Amazon. Morgan Stanley’s Brian Nowak has an Overweight rating the stock with a $1,250 price target.According to him, Amazon could even hit the $1 trillion market cap milestone by as early as next year if the higher margin segments like AWS, subscriptions, and advertising deliver strong growth. SunTrust Robinson Humphrey has a price target of $1,270 on Amazon stock. However, this doesn't mean that Amazon stock is not risky. Given its sky high PE (ttm) multiple of 285x, any miss on top and bottom line could lead to a correction.

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Kumar Abhishek Kumar Abhishek   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice.

Buying and selling of securities carries the risk of monetary losses.Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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