Amazon (NASDAQ:AMZN) shares have gone in and out of fashion more times than I could count ever since it went public in May 1997 at a bargain price of $17. The e-commerce giant is in Wall Street’s dog house after posting two disappointing quarters in a row. AMZN stock is up 20% this year, underperforming the S&P 500, which has risen 23% since January.
That is the smallest gain AMZN stock has recorded since at least 2010.
Wall Street analysts, though, still have faith in the Amazon. Their average target for the Amazon stock price is $2,200, more than 20% higher than where it currently trades. I share their optimism to a point, though I would wait for a pullback before buying the shares given its nosebleed valuation of 80.
Amazon Web Services has been a godsend for AMZN. During the latest quarter, AWS earned an operating income of $2.08 billion slightly better than the $2.03 billion Amazon’s North America business made during that same time.
AWS Is Still A Cash Cow
Revenue growth at AWS slowed to 37% from 49% a year earlier. The business accounted for 13% of AMZN’s overall revenue for the quarter, which was $70 billion. While AWS still holds a commanding 31.7% share in the cloud market, that is starting to slip as well.
For one thing, corporations are also increasingly spreading their cloud spending around to avoid becoming too dependent on one vendor. The competition in the market is heating up.
Microsoft recently won the Pentagon’s $10 billion JEDI cloud computing contract, which many on Wall Street expected to go to AMZN. Although some may suspect that the Trump Administration was punishing the company for the “sins” of CEO Jeff Bezos’ newspaper The Washington Post, such claims are hard to prove.
Jolly Holiday Season Ahead for AMZN Stock
AMZN’s core e-commerce business should do fine during the holiday season. The National Retail Federation expects holiday sales to rise between 3.8% to 4.2%, above the average 3.7% gain seen during the previous five years. Barring any economic catastrophes, AMZN should have another record holiday season.
Anyone who buys AMZN stock has to accept Bezos’ managerial style.
The richest man in the world doesn’t concern himself with the gyrations of AMZN’s stock. He doesn’t fret much about quarterly earnings, preferring to focus on the big picture. I don’t remember the last time he participated in a conference call with Wall Street analysts.
Ordinarily, investors would take umbrage with such disdainful treatment. Bezos, though, has delivered for AMZN shareholders in the past. Shares of the Seattle-based company have surged more than 12 fold over the past decade. Although Amazon’s days as a hyper-growth stock may be over, the stock still has some life in it.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.