The continued strength of Amazon’s (NASDAQ:AMZN) Amazon Web Services (AWS) unit and the company’s promising new initiatives are among the factors that are keeping me very bullish on the long-term outlook of AMZN stock.
The company’s decision to buy back a huge amount of its shares and the reasonable valuation of its stock, along with its decision to increase its Prime membership fee, also make me upbeat on the name.
AWS Is Continuing to Perform Well for AMZN Stock
The revenue of the conglomerate’s AWS unit, which provides cloud infrastructure to enterprises, jumped to $17.78 billion in the fourth-quarter, up from $12.7 billion during the same period a year earlier. AWS’ fourth-quarter (Q4) sales also easily beat analysts’ average estimate of $17.23 billion.
Meanwhile, in Q4, overall global spending on the cloud jumped 34% year-over-year — according to research firm Canalys — and AWS retained its leading 33% share of the sector, another research firm, Synergy Research Group, stated.
In light of these numbers, I believe that AWS performed very well in Q4, while the unit’s top and bottom lines are likely to continue to surge going forward.
Exciting and Progressing New Initiatives
On Feb. 8, Amazon announced that it is rolling out its telehealth offering throughout the U.S. Further, the company stated that it would bring “its in-person care arm” to up to 20 American cities in 2022, versus just eight currently.
During the last decade of Jeff Bezos’ tenure as the company’s chief executive officer (CEO), I don’t recall it moving nearly this quickly to launch complicated, new projects like these healthcare services. Obviously, it will be important to see how the company executes on these initiatives.
But the fact that it is rolling them out so rapidly makes me more confident in my thesis that the company’s new undertakings will be launched much faster under its new CEO, Andy Jassey, than it did from 2011 – 2021.
Not only do I believe that the company’s healthcare projects will — if executed well — meaningfully improve its financial results on their own, but I think they will indirectly and meaningfully increase the utilization of its e-commerce services and hardware products. That is because, as Americans utilize the company’s healthcare services, they will probably visit its website much more often, making them much more likely to buy other products from the company.
Under Jassey, the company is also determinedly pursuing other exciting projects. Among them is the potential game-changing initiatives that the company has recently announced are the expansion of its smart home management system — Matter — and a “personal robot.” Again, if these undertakings are successful, I believe that they can meaningfully increase Amazon’s ability to sell many other e-commerce products, boosting AMZN stock in the process.
Finally, Amazon has recently announced major investments in two highly promising transportation technology companies — Velodyne Lidar (NASDAQ:VLDR) and Aurora Innovation (NASDAQ:AUR).
Velodyne develops lidar sensors used in self-driving systems, while Aurora develops self-driving systems for trucks. With these investments, along with the large amount of money that it ploughed into electric vehicle (EV) maker Rivian (NASDAQ:RIVN), Amazon has ensured that it will be at the forefront of multiple, key transportation technology trends. In the long run, that should help it retain its dominance in the e-commerce sector.
Prime Membership Fee Increase and Share Buybacks
The company’s decision to increase its annual, undiscounted Prime membership fee by $20 can, I believe, prove to be quite beneficial for it. That will be particularly true if the company reinvests a meaningful portion of the additional funds in enhanced services, including better delivery performances, for Prime members.
Such investments should, over the long-term, enable the company to prevent Prime members from dropping the service and entice meaningfully more consumers to join it. And, since Prime members tend to buy more products from the company, accelerating the enhancements of Prime should greatly improve Amazon’s e-commerce results.
On the buyback front, the conglomerate recently bought back $1.3 billion of its shares, marking the first time it has repurchased AMZN stock in a decade. That decision should get Wall Street more excited about the shares going forward, providing a strong, positive catalyst for the name.
The Bottom Line on AMZN Stock
Like most e-commerce businesses, the performance of Amazon’s e-commerce unit has deteriorated as the pandemic has eased.
But I believe that the company’s new initiatives should, over time, greatly improve the unit’s performance. Meanwhile, the AWS division remains a juggernaut, while the company’s share buybacks are a meaningful, positive catalyst for the stock.
Finally, AMZN stock is trading at a relatively low (for a strong, growing tech company) price/sales ratio of 3.65. Given all of these points, I recommend that conservative investors looking for exposure to a large tech company buy the shares.
On the date of publication, Larry Ramer held a long position in AUR. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Ford, solar stocks, and Exxon. You can reach him on StockTwits at @larryramer.
