Amazon.com, Inc. (NASDAQ: AMZN)
Amazon is an incredible company. However, if you looked at the stock a couple of years ago, it wouldn’t have looked like that. After Jeff Bezos went on a spending spree to build fulfillment houses, investors got concerned. However, last year was an incredible year of the stock. Amazon proved that their low margin business model was working, and working well! Today, we’ll talk about why Amazon climbed last year and why I believe we can expect to see further incredible gains on AMZN this year. So, let’s get right to it…
Why Amazon Had Such A Strong Year Last Year
In late 2014, investors began to give up on AMZN. The reality is that the low margin business model the company was involved in hadn’t yet proved to be profitable. While Amazon was losing money, Bezos was spending it. However, his spending has proved to pay off.
In the beginning of 2015, AMZN produced an earnings report that finally showed positive figures for earnings per share! This started a frenzy of buying with regard to the stock, driving the value up in a big way. However, that wasn’t the end of the growth. As the year passed, more and more good news. One big piece of this news was AWS. During the same earnings release where Amazon proved to be profitable, they also gave investors the first bit of information with regard to Amazon Web Services. By that point, the low cost cloud service had already grown to be a company that was worth $5 billion. This helped to excite investors further. However, that’s not all.
In mid 2015, we started to hear more and more about Amazon Prime. I will admit, that when I first looked into Prime, I couldn’t for the life of me understand how the service was profitable. Amazon Prime members pay $99 per year for the service. In exchange for their payment, members receive free 2 day shipping on many products in the online retailer’s catalog. On top of free 2 day shipping, members have access to free streaming video and more. So, at first glance, it’s hard to understand where the profitability is. However, surveys showed that a massive amount of Prime members spend at least $800 per year on orders from Amazon’s website. That is quite a bit of money considering the massive amount of Prime members that are out there.
Why Amazon Is Going To Have Another Good Year
There are several reasons to be bullish on Amazon. However, I believe that there are 3 main driving forces that will send AMZN over the top this year…
- AWS – Amazon Web Service continues to grow in popularity. In fact, I’m using it, my clients are using it, even my cousin is using it! Because of the massive growth in popularity, we can expect to see strong revenue out of the service throughout the year 2016.
- Amazon Prime – Amazon Prime continues to grow in a big way. In fact, it was recently estimated that Prime has around 60 million users around the world and that the number is rising fast. This is because of the revolving door that Prime creates. Consumers sign up to get free shipping on products. In turn, businesses offer Prime products to attract the consumers looking for free shipping. Because more Prime products become available, more consumers sign up, and the door spins round and round. Ultimately Prime is a major driver for Amazon.
- Infrastructure – What Amazon has this year that it didn’t have last year is infrastructure. Due to the big spending AMZN was doing in late 2014, Amazon now has several fulfillment houses throughout the United States and around the world. Because of this, Amazon now ships faster than just about any other online retailer. This will help the company to maintain its leadership role throughout the year and continue to grow!
What Do You Think?
Where do you think AMZN is headed moving forward and why? Let us know your opinion in the comments below!