- The launch of Amazon Music Unlimited looks another masterstroke and will increase Prime memberships accordingly.
- The expansion of Amazon's logistics will benefit Amazon Fresh plus brick and mortar stores will give customers more options.
- Amazon is essentially a play on continued economic growth. As long as incomes are rising, Prime will continue to grow.
Amazon.com Inc. (NASDAQ:AMZN) stock is currently trading at $817 and seems to be in no rush of slowing down. I wrote an article recently stating that despite this company's high earnings multiple, I still see higher prices ahead. Why? Because over the last decade or so, this company has given the market what it has wanted. Amazon has consistently invested its cash flows back into long-term growth avenues which the market has consequently rewarded. Investors should realize that stocks can go much higher than initially envisaged and I believe this company will remain in a strong growth phase for many years to come.
Just look at what the company is doing with "Amazon Music Unlimited". In fact, Amazon is basically subsidizing the service in an attempt to get more users signing up for prime membership. This music service has been pitched at a really competitive price ($9.99 for non-prime members) and when you see for example the 40 million subscribers using Spotify's offering (and Apple signing up 17 million of its own) , it's easy to see why Jeff Bezos wanted a piece of this market.
Prime Members Will Continue To Receive Subsidized Pricing On Other Products & Services
This new course of action taken by Amazon by offering products and services outside its prime program will definitely pay dividends in the future. In fact, any Prime member paying for music streaming at present will probably switch over to Amazon's offering because of the price difference. Shareholders shouldn't be worried that the company's earnings will undoubtedly dip back into negative earnings territory because of investments such as these. The long-term goal is clear. Subsidize products and services to increase the number of monthly prime subscribers over time. Therefore, expect more strategies like this where you will see Amazon subsidizing services for prime subscribers. Video and live TV come to mind straight away where the tech company can adopt similar roll-outs.
Amazon's Streaming Music Service Is Better Than Competition
While Amazon Music Unlimited is available outside the prime program Amazon Fresh isn't. This though will also probably change in the future where you will see a subsidized price for prime members. Amazon is really trying to make waves with its grocery delivery with the axing of the $299 annual fee and the roll-out of brick and mortar pick-up points. This has to be worrying the likes of Wal-Mart Stores (NYSE:WMT) & Kroger (NYSE:KR) who do not offer delivery solutions as fast as Amazon. If Amazon rolls out a number of "pick up points", "Amazon Fresh" could be considered cheap (at $14.99 a month) if you have delivery or pick up options in a matter of hours
Amazon Is A Strong Play On Economic Growth Especially Through Initiatives Such As Amazon Fresh
In fact, when one reflects on the amount of time that is needed to buy fresh groceries every month, Amazon's $14.95 fee for prime members may not be expensive in the grand scheme of things. Therefore, investors should be watching metrics such as retail spending and unemployment figures. One is still paying for a service if one wants to pay Amazon for their respective shopping. The growth of these services would definitely be cut back in a recession as people invariably have more time on their hands. Therefore, this is why Walmart should outperform Amazon in a deep recession but Amazon should easily outperform Walmart if economic growth continues.
Equity Markets Are Technically Weak At Present
On the technical front, the S&P500 looks particularly weak as we now have pierced through the September lows. Therefore, we could easily fall back to the 200 day moving average before bottoming out in my opinion. This could easily take 5%+ off the current Amazon stock price but it should be viewed as a buying opportunity.
Sentiment Too Frothy
Investor sentiment is also at its highest point this year. Therefore, it doesn't make sense buying up here. When you consider the weakness of equity markets, I'm banking on being able to pick up more Amazon shares at lower prices.
Source : Sentimentrader.com
To sum up, although Amazon stock may be overpriced from a valuation perspective, I see plenty more upside in this stock. The unlimited Music service offering will prove to be a hit as it continues its quest to intrude more and more into your home. On the grocery and marketplace side, Amazon stock is all about delivery speed. The more prime members the company gathers, the more efficient delivery options will become. This company is still well away from the peak at this stage in its growth cycle.
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