by Dan Burrows | June 16, 2014 9:53 am
Everyone should root for Amazon (AMZN) stock whether they hold it or not, so fingers crossed that this week’s highly hyped mystery launch gives Amazon stock the boost it so sorely needs.
After all, with its $150 billion market cap, AMZN was once one of a handful of tech stocks that could carry the Nasdaq Composite on its back. But these days, Amazon stock is only weighing everyone down.
AMZN stock is down more than 18% for the year-to-date, and that doesn’t help anyone from Amazon investors to indexers. Thanks partly to the anchor that is Amazon stock this year, the Nasdaq is up less than 3%, lagging the S&P 500 by about 1.5 percentage points.
The issue with Amazon stock is that it trades on revenue acceleration — not earnings. Indeed, AMZN invests so much money back into the business it barely has any earnings. Sometimes it even manages to surprise Wall Street with a loss.
Keeping that top-line trajectory on track requires lots of fresh hype and pleasantly surprising data to help the market keep its faith that Amazon stock really is worth the crazy-high multiples it commands. Whether there’s any substance to the hype is almost beside the point. As long as Amazon can keep hope alive, it can deliver the upside investors are betting on.
It has been while since Amazon delivered any stock-popping catalysts (Prime Music didn’t do much for AMZN), but there are some events and developments that could get Amazon stock out of its funk.
Here are three things coming soon that could get Amazon stock moving again:
The biggest potential catalyst for Amazon stock could come as early as this week. Amazon is hosting an event June 18 to introduce something new, and the rumor mill has it that the company will finally launch its mythical 3D smartphone.
Indeed, excitement over the Amazon phone has been building for so long, Amazon stock will likely take at least a short-term hit if it doesn’t debut the new gadget.
Like the Kindle Fire, AMZN will be happy to sell each device at a loss. The strategy is to make money by selling stuff on the phone — not from selling the phone itself — and that should juice revenue a little bit now, and a lot later.
Perhaps most importantly, there will almost certainly be something that entices customers to sign up for Amazon Prime (one rumor says members get the phone for free), which is another cornerstone strategy intended to make Amazon the center of the retail world.
Locking customers into Amazon Prime — the $99-per-year membership program that gives subscribers free shipping, streaming video and now streaming music, among other goodies — is another strategic initiative intended to ensure that revenue never stops growing.
To that end, the chatter is that Amazon will launch a marketplace for local services to complement its Amazon Fresh home-delivered grocery service. As with Amazon Fresh, which was tested in Seattle for five years before expanding to L.A. and San Francisco, the local services initiative will start small. But if the market has enough foresight, it will see that the one-two combination products could be a huge driver of revenue one day.
The local services business is rumored to encompass everything from babysitters to plumbers to tree trimming — any kind of service a city dweller or suburbanite might need. That level of convenient, one-stop shopping, accessible from an Amazon 3D smartphone would bring Amazon that much closer to world domination. That’s all good for Amazon stock.
As noted, Amazon plows so much cash back into growing its business that it has a nasty habit of missing Wall Street’s estimates. Sometimes AMZN even delivers a surprise loss, even after analysts make conservative assumptions and lowball their own numbers.
Against that backdrop, AMZN could do Amazon stock a huge favor just by hitting the Street’s numbers. And if it could actually beat some of those forecasts — which are still quite rosy — AMZN stock would no doubt get a big lift.
After all, even after making the Street look like optimistic fools more than once, analysts’ average estimates for AMZN still call for strong top- and bottom-line gains. For the current year, the Street sees revenue rising 22%. (By comparison, S&P 500 revenue is likely to grow just a couple percentage points.) Earnings per share, meanwhile, are expected to hit $1.09 vs. 59 cents a year ago. The hot growth is there, but over-delivering by even a little would be the best catalyst Amazon stock could have.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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