Amazon (NASDAQ:AMZN) stock has been trading sideways for the past year. I strongly believe that AMZN stock is in a consolidation zone ahead of its next rally.
I am examining the long-term outlook of AMZN stock, and my upbeat view is supported by the company’s growth potential. In this column, I will discuss the factors that can trigger sustained top-line growth by Amazon.
Before talking about AMZN’s growth triggers, I want to point to an interesting trend in the retail industry. Companies like Walmart (NYSE:WMT) and Target Corporation (NYSE:TGT) are investing in expanding their online presence. On the other hand, AMZN is gradually building more brick-and-mortar stores. A key conclusion from these trends is that the retail sector’s online and brick-and-mortar-store segments are both growing.
Amazon Stock Can Be Boosted by U.S. Growth
When I last discussed AMZN stock, my focus was on the company’s growth outlook in India and Southeast Asia. However, AMZN can still grow further in developed markets.
According to the U.S. Census Bureau, in the second quarter of 2019, 10.7% of total retail sales were e-commerce transactions, up from 9.8% a year earlier. Therefore, e-commerce’s share is increasing, but online sales are still low compared to the sales of brick-and-mortar stores.
I believe Amazon’s market share will rise in coming years due to the following factors:
Amazon is working on differentiating ideas that will make consumers happier. As an example, the company’s “Amazon Go” brick-and-mortar stores have eliminated the need to wait on lines to pay. That will reduce the time needed to shop. As an article from Harvard Business Review suggests, analysts view AMZN as one of the most consumer-centric companies. This focus will help Amazon grow and differentiate itself from its peers.
An article on InvestorPlace, written by Rohit Chhatwal, discusses Amazon‘s increasing shipping costs and their impact on the company’s profit margin. I believe that the company’s brick-and-mortar stores will help reduce its shipping costs.
In June 2019, the company introduced pick-up points at more than 100 Rite Aid (NYSE:RAD) stores in the United States. By the end of 2019, the plan is to increase the number of pick-up points to over 1,500.
Similarly, the creation of Amazon Hub Locker+ is another strategy that will reduce the company’s shipping costs. Besides reducing costs, these pick-up points will enable consumers to obtain the products they ordered more quickly. As a result, demand for Amazon’s products will increase and its sales growth will accelerate.
One of the services launched by Amazon in 2018 was “Prime Wardrobe.” The service allows Prime customers to “choose between three and eight items of clothing” and try them on at home. Customers can return the items they don’t like. Obviously, the ability to return apparel is very important to consumers. By opening up brick-and-mortar apparel stores, Amazon can attract more consumers who are used to returning clothes to such stores. The move could potentially cause its revenue growth to accelerate, further boosting Amazon stock price.
Overall, Amazon is gradually moving towards a more effective balance of online and physical stores. Over the longer run, that should help the company’s growth accelerate.
The Bottom Line on AMZN Stock
I believe that Amazon stock is consolidating before its next rally. Amazon stock price can easily exceed $2,000, considering that its revenue will probably continue growing 15%-20% per year.
Of course, a recession would hurt AMZN stock, and three out of four economists predict that a recession will hit the United States in 2021. However, since the U.S. is a consumption-driven economy, I don’t think Amazon stock will be badly hurt by the downturn. Expansionary monetary policies launched by the Fed during the recession will help boost credit growth and leveraged spending.
On the international front, I am bullish on the company’s inroads in India and its potential growth in Southeast Asia. Those two markets have an addressable population of nearly two billion. Given its robust free cash flows, Amazon can aggressively expand in these regions.
In conclusion, AMZN stock is worth considering at its current levels, despite the economic headwinds it’s facing. In the long-term, Amazon stock is likely to surge higher.
As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities.
