Amazon.com, Inc. (AMZN) started the year off slowly, especially considering the stock’s “normal” habit of outperformance. However, bullish sentiment has ramped up again in the last month or so, with AMZN stock up nearly 16% since this time in April, even as the Nasdaq has sunk 4%.
Such a rebound has solidified the fact that AMZN’s slow start to 2016 was just a blip; tally it up and shares have soared 66% over the last 12 months.
In fact, Amazon stock hit the $700 mark just last week after Bernstein suggested a price of $1,000 per share was plausible in the next year or so.
Bernstein believes AMZN stock is undervalued for a few reasons, most of which revolve around lower costs and higher revenue that is not yet baked into the share price. Fulfillment centers, for example, are expected to get more efficient, while technology and content acquisition costs for Amazon Prime video are also expected to drop.
The latter trend was potentially reinforced by Amazon’s recent announcement related to video: the debut of “Amazon Video Direct,” a content platform that in many ways resembles Alphabet Inc.‘s (GOOG, GOOGL) YouTube.
Why Amazon Video Direct Makes AMZN a Winner
With Amazon Video Direct, users can upload their own videos, then choose from or combine a few payment models. According to the service’s page, the options include royalties based on hours streamed by Prime members, a revenue share for rentals, purchases and monthly subscriptions and ad impressions.
Amazon Video Direct confirms the importance of streaming video for tech companies; Apple Inc. (AAPL) is getting in the game, Google has been moving in the opposite streaming direction with its paid YouTube service, Hulu continues to bid aggressively on content and the list goes on.
That laundry list alone showcases both the potential and concerns surrounding streaming video, as huge market potential also means big-time competition, which could lead to customer fragmentation and/or a race to the bottom with regards to pricing.
But AMZN is no stranger to such concerns — just about all its segments are highly competitive — and it doesn’t necessarily have to “win” streaming video to spin it into a meaningful slice of its business model.
This is especially true considering that the accessibility of Amazon’s video offerings just increased. AMZN recently broke out its video streaming service, which was previously only available as part of the annual Prime bundle, but is now available on its own.
And it’s for a whopping $1 cheaper per month than Netflix Inc.‘s (NFLX) streaming service.
That new model makes Amazon Video Direct even more appealing. For one, this is, at its core, a platform for uploading and sharing content, which is a solution to the fact that so much video content is extremely expensive off the bat.
But the good news doesn’t stop there: The varying revenue streams attached to it offer more upside potential than a solely ad-based offering, yet the ad-based (read: seemingly free) content could serve as nice lead-generation for the paid service.
Add it up, and this addition fits nicely into the growing AMZN ecosystem, which should help the continued growth of Amazon stock.
Despite the competitive nature of the space, Amazon should excel at combining various revenue models to offer another a compelling service in the growing streaming space.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
