By all accounts Amazon.com, Inc. (NASDAQ:AMZN) had a fabulous Consumer Electronics Show. According to InvestorPlace contributor Brad Moon, Alexa was the big winner of CES 2017 — an event the company didn’t even have its own booth at. The company’s Alexa voice assistant could eventually become an operating system, showing up last week in refrigerators, cars and robots. But what kind of affect does this have on AMZN stock?
Amazon’s ability to get its assistant supported by hardware contrasted with the failures of Siri from Apple Inc. (NASDAQ:AAPL), Cortana from Microsoft Corporation (NASDAQ:MSFT), and Google Assistant from Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL).
Amazon did it, first, by delivering the assistant to millions through its Echo speakers and, second, by allowing it to run on the cheapest imaginable hardware, focusing instead on the cloud-based Alexa Voice Service API. Rivals sought to use their voice assistants to tie hardware to their higher-end ecosystems, and they are unlikely to show much for consumer markets before next year.
AMZN stock had fallen from a high of nearly $850 per share in October to a post-election low of barely $720. To many investors that is starting to look like yet-another missed opportunity to get in.
Spectacular Whispers
The “whisper number” on Amazon’s Christmas-season earnings have become outrageous. The latest is for earnings of $1.43 per share on revenues of $44.70 billion. Last Christmas, by contrast, Amazon did $1.00 per share of earnings on revenues of $35.747 billion and, after another one of those discouraging falls (this time to near $500), rose steadily to that near-$850 high.
If AMZN stock matches expectations, you’re talking about top-line growth of 25% and earnings growth of 43%, year-over-year. You’re still talking about paying nearly three times sale for a retailer, when successful merchants like Wal-Mart Stores, Inc. (NYSE:WMT) get just 40 cents of equity for each dollar of sales, but Amazon is no longer a retailer.
Since then, of course, AMZN has become a major TV studio, with the Golden Globes to prove it. In addition to its $100 per year Prime shipping plan, which includes the video offerings and ties customers to the shopping service with free shipping, Amazon has added $10-per-month plans for music and eBooks — I’ve lately found the Kindle Unlimited offering to be outstanding.
Its Amazon Web Services cloud is practically an industry standard, and its most recent report showed it growing 55% per year, to a run rate of over $11 billion, with high profitability. If Alexa is becoming an operating system, akin to Windows, Android and Apple’s iOS, many will consider it highly undervalued.
The Bear Case for AMZN Stock
Every story like this must include a bear case for the stock.
Back in 2012, when I first started accumulating shares at about $330 each, bears claimed that Amazon didn’t make any money, that it was a “Ponzi scheme” and, essentially, an over-priced merchandiser.
Just last week, InvestorPlace contributor Chris Tyler wrote that the technicals were bad, that the data collected by the Echo may become subject to judicial review and that the incoming Administration doesn’t like the company.
Scams are proliferating on the service and one long-time Amazon bull, Trip Chowdhry of Global Equities, told his followers to dump AMZN stock late last year, saying cloud growth catalysts are gone.
I’m Not Selling Amazon Stock
I disagree. AMZN stock has become like Apple, a stock you buy when you can and hold onto. I have more than doubled my money on Amazon stock since 2013, and while it’s becoming an uncomfortably large part of my retirement account, I’m going to own it for the long haul.
We are still in the early innings of the cloud revolution, voice operating systems are brand-new and the disruption of cable by internet offerings like Netflix, Inc. (NASDAQ:NFLX) and Amazon Prime has really just begun.
AMZN remains hungry, entering the activewear market under its own brand, private labels in food and geography-specific offerings like a move into India’s big market for second-hand goods.
Even at its present sales level, Amazon is still less than one-third as large as Walmart, with better penetration of international markets and now it is a true player in the “great game” of technology industry leadership.
If I weren’t stuffed with AMZN stock (no retirement account should have all its eggs in one basket) I’d be buying more. And that may be the key caution I can offer. When everyone is this bullish, listen to the bear.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN, AAPL, MSFT and GOOGL.
