Amazon.com (NASDAQ:AMZN) touched the $1,000 level a least half a dozen times only to fall again, settling at around $955. Concerns about its valuations (its forward P/E is 122x) will neither pull the stock higher nor lower. The online e-commerce giant needs something bigger to rally again. A giant earnings beat is one positive catalyst for the stock.
Amazon.com is slated to report quarterly results on October 26 after the market closes. Revenue from Amazon Web Services (“AWS”) will likely beat consensus estimates.
Demand for cloud-based solutions keep growing, thanks to heavy demand for data processing, growth in smartphones and the apps that run on the cloud, and the generally good market conditions.
Amazon’s AWS is such a success that Oracle Corporation’s (NYSE:ORCL) CEO, Larry Ellison, guaranteed Oracle’s database cost would be less than that of AWS. Oracle’s 18c database is a superior product, so the CEO’s claims could encourage AWS users to switch over to an Oracle solution.
Amazon.com Enters Food Market
Turning next to a completely different market, Amazon.com’s entrance into the fiercely competitive supermarket business already has food retailing investors nervous. Costco Wholesale Corporation (NASDAQ:COST) stock and Target Corporation (NYSE:TGT) fell sharply after the e-retailer bought out Whole Foods Market. It is too early to predict how much better sales will improve for Whole Foods following the buyout.
Early checks indicated Amazon.com sold only $1.6 million of Whole Foods good in the month of September. On a practical level, consumers probably browsed the goods at the grocery store, realized the prices were still high, and left. For the time being, The Kroger Co. (NYSE:KR) should not lose much business to Amazon, but the stock is trading at yearly lows, down 45% from yearly highs.
Investors may even want to take a step back from owning AMZN stock until it proves the buyout will pay itself off. Amazon’s other businesses as a whole must show profitability.
Then again, speculators do not care about profits at Amazon. As long as they believe the online giant has the know-how to disrupt business models every time it enters new markets, valuations for AMZN stock is of secondary concern.
AMZN Hardware Ambitions
On September 27, Amazon unveiled a refresh to its line of Alexa devices. The second-generation Echo will retail for $99. It will have a broader appeal, thanks to the improved audio (a bass tweeter and Dolby Audio). The Echo Plus retails for $149 and includes a built-in hub that works with other smart phone products. The Fire TV now has HD and 4K support and costs $69.
These products should drive customers, especially those on Amazon Prime, to the website so that they do more shopping. That is what should happen in theory, at least. The TV device will also give customers an alternative choice to Apple Inc’s (NASDAQ:AAPL) Apple TV or Alphabet Inc (NASDAQ:GOOG) when it comes to online content.
Overall, investors are not overly impressed with the developments at Amazon. The stock is trending lower. Markets may be waiting for the company’s quarterly results, which is set for October 26 after the market closes, before bidding the stock back to $1,000 a share.
Takeaway
Barring any major market selloff, Amazon’s more likely to return to the $1,000 a share level than to keep falling. Markets are ignoring exuberant valuations, so if Tesla, Inc. (NASDAQ:TSLA) and Netflix, Inc. (NASDAQ:NFLX) trade at lofty levels, so can Amazon. So $1,000 again? It is very possible. Investors who trade trends and momentum will have no problem with this stock but value investors should stay away from this dotcom giant.
Disclosure: The author does not own any of the stocks mentioned in this article.
