Up 21% year-to-date with a market capitalization of over $903 billion and sitting as the third-largest company in the S&P 500, it’s often hard for Amazon.com (NASDAQ:AMZN) to tread lightly. In the rarefied air in which Amazon stock resides, it usually takes a lot to move the needle.
“A lot” meaning billions of dollars. Last year, the company had $233 billion in net sales, solidifying its status as one of the world’s biggest online retailers. Amazon Web Services (AWS), the company’s cloud computing business, is a multi-billion dollar unit and the list goes on. When Amazon speaks, it’s usually not softly and it’s usually with a big stick to paraphrase President Theodore Roosevelt.
That’s alright because, at least for traders with short-term time horizons, Amazon could use a little rejuvenating. Price action has been sluggish if not downright bad over the past couple of months, but that should not derail the thesis that Amazon stock is going back to $2,000 and beyond.
One of the primary reasons for the stock’s recent lethargy is that the company, along with rivals such as Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and Facebook (NASDAQ:FB) are dealing with antitrust scrutiny.
Specific to Amazon, the company is dealing with regulators peering into speculation that the company’s marketplace search function turns up the most profitable items or Amazon-made brands first, potentially stymieing competitors’ offerings.
Bloomberg reported last week that a team of Federal Trade Commission investigators has begun interviewing small businesses that sell products on Amazon to determine whether the eCommerce giant is using its market power to hurt competition. according to the news agency.
Some big companies can and do draw the ire of regulators, and there’s no denying that related headlines can weigh on share prices as has been the case with Amazon stock.
However, among the reasons to stick buy Amazon stock are the company’s history of innovation, management knowing it’s Uncle Sam’s crosshairs and that it must nurture, not quell, competition on its marketplace.
“The traditional brick-and-mortar retail industry is undergoing a rapid transformation, particularly in commoditized categories,” said Morningstar in a recent note. “With nonexistent customer switching costs and intense competition, we’ve already seen Circuit City, Linens ‘n Things, Borders, and RadioShack exit the retail landscape, while Barnes & Noble, Sears, office superstores, and a host of other retailers struggle to reverse deteriorating fundamentals.”
That’s called the “Amazon effect” and the company could be looking to apply it in other industries, including streaming music. Amazon’s Amazon Music HD puts the company in competition with Apple and Spotify Technology (NYSE:SPOT), neither of which offer HD services.
This could bolster Amazon in the streaming music arena, a category in which the company badly trails Apple and Spotify.
“The new service is $12.99 for Prime members and $14.99 for others. Current Amazon music subscribers can move up to the HD service for an extra $5 a month. The standard definition music subscription price is $7.99 for Prime members,” according to Barron’s.
Amazon is looking to up its logistics footprint in Germany, its second-largest market. This is something the company has been doing in the U.S., looking to decrease its dependence on the United States Postal Service and FedEx (NYSE:FDX).
In Germany, reducing shipping relationships with the likes of Deutsche Post DHL, Hermes and DPD, could help Amazon offer more desired services, such as same-day delivery. The effort to put the German “last mile” under company control will result in Amazon building 11 more distribution centers, taking its total to 24, in the Eurozone’s largest economy.
Bottom Line on Amazon Stock
Amazon stock is definitely a growth stock and one befitting of that designation because it can deliver credibly. At $1,822 at the Sept. 17 close, upside from here could be significant with Amazon stock heading to $2,200 to $2,300, if growth forecasts are met or exceeded.
“Amazon’s competitive position and compelling value proposition should lead to additional share gains in 2019, putting full-year revenue growth around 19%. Our model assumes average annual revenue growth of around 16% for the five years ending 2023,” according to Morningstar. “Smaller segments like physical stores, third-party seller services, subscription services, AWS, and advertising growing 6% (on a pro forma basis), 19%, 27%, 30%, and 31%, respectively, over the same period.”
Todd Shriber does not own any of the aforementioned securities.