This has been a bumpy year for e-commerce giant Amazon.com Inc. (NASDAQ:AMZN), and Amazon stock looks poised to finish the year far below its August highs above $2,000 per share.
However, the days of impressive gains aren’t over for the owners of AMZN stock; in fact, the opposite is true. With the tech firm’s share price bruised after lackluster third-quarter results, 2019 could shape up to be a good year for patient investors who hold onto Amazon stock.
Advertising Prowess
What makes AMZN a good long-term bet in my book is the fact that the company owns a massive and extremely valuable pot of consumer data that could eventually enable its advertising business to surpass digital ad giants like Facebook (NASDAQ:FB) and Alphabet Inc. (NASDAQ:GOOGL).
This year, Amazon quietly became the number-three digital advertiser in the U.S. behind GOOGL and FB. Although AMZN controls just 4% of the market right now, I think that figure will rise considerably, and so do many experts: Amazon’s ad revenue is expected to double this year and reach $28.4 billion in five years.
Amazon knows a lot about its customers; it tabulates everything they ask their Alexa assistants, what they watch on Prime Video, their grocery orders, and the types of products they’re most likely to buy. The last item is the most important because unlike its competitors, AMZN collects all of the purchase data from the Amazon e-commerce website. As a result, companies that buy ads on AMZN can use the data to determine whether their ads have spurred purchases.
AWS
Another growth catalyst for Amazon stock in 2019 is Amazon Web Services (AWS), the company’s cloud-computing arm. AMZN is known primarily for its enormous e-commerce business, but AWS has been responsible for a huge part of the firm’s long-term success and shouldn’t be overlooked. While the business hasn’t had a sizable impact on Amazon’s top line, it’s worth noting that AWS accounts for more than 70% of the company’s operating income. Plus, AWS is growing very rapidly; last quarter the cloud computing business’ revenue surged 46% versus the same period a year earlier, and its operating income jumped a staggering 72%.
AMZN has planted its flag firmly in the cloud computing space, and AWS, the top dog in the industry, is generating a great deal of profits for AMZN. While the e-commerce business may hit some bumps, AWS looks poised for strong, consistent growth in the coming year.
Streaming Success
Amazon could also be helped by positive sentiment regarding its streaming service in 2019. The firm has been creating a valuable content library, and most analysts contend that AMZN will be able to hold its own against competition from Netflix (NASDAQ:NFLX) and Disney (NYSE:DIS).
Next year, AMZN will probably add live sports to its streaming platform, as the company reportedly bid on 22 regional sports networks that Disney has been forced to divest as a condition of its merger with 21st Century Fox (NASDAQ:FOX). The networks have been valued as high as $25 billion, which would make the purchase Amazon’s largest to date if it is actually carried out.
In any case, it’s clear that AMZN is looking to enhance its streaming business with live TV options. That strategy should further increase the company’s appeal to advertisers, and any moves in that direction will be good news for owners of Amazon stock.
Amazon Stock Should Benefit From a Strong Holiday Quarter
Now that the disappointment about the Q3 results has passed, AMZN stock is poised to have a strong year. The company’s lackluster Q4 guidance has dampened investors’ expectations for the firm’s next earnings report, but if Amazon has a strong holiday season, its results could beat expectations, lifting Amazon stock.
Amazon’s management is already boasting about its record-breaking sales over the Thanksgiving holiday weekend. During the five days between Thanksgiving and Cyber Monday, Amazon says its customers ordered more than 180 million items.
The Bottom Line on Amazon Stock
The poor sentiment following Amazon’s third-quarter results has created a buying opportunity in Amazon stock that won’t be around for long. The company’s long-term growth story remains intact.
It’s important to remember that Amazon is much more than just an e-commerce play; AWS alone should be enough to make you want to buy AMZN stock, but the company’s advertising business also looks promising. Now is the time to take advantage of the temporary weakness of Amazon stock.
As of this writing, Laura Hoy was long AMZN stock and NFLX stock.
