Over the last decade, no company has shown the ability to transform itself like Amazon (AMZN).
It started off as an online bookstore, then it became an e-commerce juggernaut and has since added cloud infrastructure services to the mix.
This ability to reinvent the wheel has helped push Amazon stock north of $650, and its market capitalization over $310 billion.
Unfortunately for Amazon stock owners, the company’s valuation is now stretched, leaving little, if any, long-term upside based on its outlook in the businesses where it operates.
Fortunately, if there is any company that can once more reinvent itself, and become dominate in yet another massive industry, it is Amazon.
With that said, there are four big moves that Amazon could make right now that would grow its business, boost its profits and drive Amazon stock price higher.
Unlike its move into e-commerce from books and web services, these are natural transitions that build off its existing business. And most importantly, these are moves that Amazon might actually make near term.
Amazon Stock Catalysts: Brick-and-Mortar Stores
Amazon has made no secret that it is in fact an e-commerce company, not a showroom for consumer electronics. While Amazon has single-handedly put bookstores and consumer electronic stores out of business, it is actually in prime position to embrace brick-and-mortar for certain purposes.
The bottom line is that Amazon collects loads of data on consumers in different parts of the country, thereby knowing what consumers buy and are willing to buy.
For example, Amazon recently opened its very first physical bookstore in Seattle. That may seem like a backward move, but Seattle is a top market for book lovers, and Amazon can stock the shelves with what consumers actually read in that region — something it could replicate in other markets.
Furthermore, Amazon signed a 17-year lease near Macy’s (M) in the heart of Manhattan. This enormous building could make same-day deliveries a reality, allow for in-store pickups and also advance Amazon’s online grocery initiatives with Amazon Fresh.
According to BMC, online grocery retail will grow from a $27 billion market last year to a $123 billion market by 2023.
If AMZN were to strategically open stores throughout the country, it could go a long way in advancing certain businesses like Amazon Fresh or driving sales higher with same-day deliveries and pickups.
Whether it be bookstores or consumer electronics, Amazon has the data to know what consumers want in a particular region, and for that reason it should embrace brick-and-mortar to some degree.
Amazon Stock Catalysts: Payment Processing
Amazon has over 250 million users on its platform, and accepts millions of transactions monthly.
With the company already having payment options like “Pay With Amazon” for users to make and receive payments both online and in third party stores, it makes sense for Amazon to go the route of becoming an actual payment processor.
This would mean that Amazon directly targets the duopoly that Visa (V) and MasterCard (MA) have created; but because of Amazon’s relationship with both consumers and businesses, AMZN has a shot to disrupt this market. The one piece of the equation it must solve is getting banks on board to issue Amazon debit/credit cards.
With there only being two large-scale payment processors, banks historically have had to choose between one or the other, and have been vulnerable to whatever rates the processors charge per transaction.
Amazon could enter this space, partner with banks and give consumers a choice between Visa or Amazon cards, and merchants would likely support the movement if AMZN was willing to undercut Visa and MasterCard’s transaction fees.
Nevertheless, it may take Amazon a while to figure this out, but with Visa and MasterCard both having operating margins well over 50%, there is a good chance that Amazon invests the time it takes to make this happen.
Amazon Stock Catalysts: Advertising
Back in August of last year the Wall Street Journal reported that Amazon was working on its own platform to host ads on both its own site and also on third-party sites. This would be much like Alphabet’s (GOOG, GOOGL) AdWords program, and would compete directly against Google’s $50 billion advertising business.
That said, Amazon already hosts ads on its site, but the ads are powered by Google. In theory, if Amazon made this move it would profit solely on the $1 billion-plus ads sold on its site, and probably more if third-party sites elect to use Amazon over Google for ads.
Given that Google has an operating margin of 25%, this would be a high-margin business for AMZN to enter, one that seems like a natural transition since the company already supports ads.
In other words, Amazon would not be risking the consumer experience if it moves forward, but could drive its profits significantly higher.
Amazon Stock Catalysts: Travel
For those who follow Amazon closely know that the company recently shutdown its Amazon Destinations service just six months after starting it.
This was a service where AMZN sold weekend getaways, but apparently it did not do so well, so Amazon shut it down along with discounted hotel deals on Amazon Local.
That said, it may be years down the road, but Amazon needs to give this another shot — but needs to separate it from commerce.
Finally, Amazon needs to take notice of what Priceline (PCLN) does different, adding the travel package deal but also emphasizing hotel, rental cars or plane tickets alone.
Like I said, this may be a ways down the road, but with Priceline’s business model yielding a 35% operating margin, it is a business that Amazon needs to figure out.
As of this writing, Brian Nichols was long GRPN.