When Amazon (NASDAQ:AMZN) rallied to above $2000 but packed off in the past summer. Investors should grow concerned as the Amazon stock crosses below its simple moving averages.
In the last few years, the eCommerce giant acquired grocery chain Whole Foods and doubled down its efforts on the Alexa offers. Although AWS and its eCommerce are core growth drivers, what will it take for the Amazon stock price to turn higher?
Strong Core Business Will Lift Amazon Stock
Predictions from the National Retail Federation that holiday sales will increase by 3.8% to 4.2% this year will give a lift to Amazon’s revenue in the next quarter. Its GMV share will top 45% this year and will reach 50% in 2021. Walmart Inc. (NYSE:WMT) and Target (NYSE:TGT) are the other retail giants taking more market share but Amazon could fare better.
Prime membership growth gives Amazon consistent cash flow growth. Customers get instant access to Prime Originals, Video through an app, and a need to buy a Fire TV Stick. Its broad line-up of voice remote devices includes the Fire Stick, Echo Dot, and Echo Show 5.
These devices enable customers to shop and order for goods with their voice alone. It also lets users choose from plenty of online content, accessing Netflix (NASDAQ:NFLX) and Google’s YouTube. It is also expanding the device’s reach globally, after it kicked off pre-orders for the device in Brazil on Oct. 2.
Growth in Grocery and Amazon Stock
According to the Wall Street Journal, Amazon signed more than a dozen grocery store leases in the L.A. area. W ith each store having 20,000-40,000 square feet, the company has a good chance of taking market share from the incumbents.
Although Amazon looks as though it is trying to do everything by expanding in this market, its strategy is unique. It is developing novel ways to operate more effectively through technology innovations.
For example, Amazon Go, which has no lines or checkouts and lets customers grab and go, saves customers time. It also removes the need to higher many workers to support the convenience store, cutting costs and boost profit margins.
For now, Costco (NASDAQ:COST) and Walmart are not feeling the heat from Amazon Go but that may change. The novelty of the technology will attract consumers and the time-saving convenience could hurt the other retailers.
In Q4/2019, Costco enjoyed membership fee income of $1.05 billion, up 5.3% or $53 million Y/Y. But if Costco members decide the yearly costs are no longer worth it and that Amazon Go is the place to shop at, Amazon’s grocery revenue will continue growing.
New Hardware Launches
Last month in Sept., Amazon launched Echo Buds, a wireless in-ear headphone, for $129. Ring Alarm brings a smart security system for homes for between $199 to $375.
Echo Eero, which costs $99 each, offers a mesh WiFi router with a dual-band radio. Echo Studio, a smart speaker that supports 3D audio and Dolby Atmos, costs $199.99. Amazon is working with Sony, Warner, and Universal to get more tracks having 3D audio support.
Hardware sales will not likely bring in that much profit for Amazon but is of strategic importance. The more often customers use Alexa, the more likely they will shop, through voice, on Amazon.com. And with the one-day shipping option available in more cities, the company will continue growing sales steadily.
The Bottom Line on Amazon Stock
Based on 46 analysts offering a target price, AMZN stock is worth $2,264. With the holiday season approaching, the stock has a good chance of turning higher in the weeks ahead.
The eCommerce giant is in a good position to benefit from higher consumer spending as seasonal strength approaches. Black Friday and Boxing Day will give Amazon a sharp lift in sales. With the stock trading back at levels not seen since March, investors may want to buy the stock now.
When the company reports strong quarterly results on the next round of earnings season, the stock may resume its uptrend.
Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.
