Amazon Stock: Current Dip A Catalyst for Buying Opportunity?

Posted On September 7, 2017 2:30 pm

Amazon Web Services


According to an eMarketer report, eCommerce sales are projected to exceed $27 trillion by the end of 2020. No other company is in a better position to reap the benefits of eCommerce than Amazon.com. eCommerce currently represents 12% of the US retail sales market, indicating massive growth potential for Amazon stock.  Amazon accounts for a whopping 41% of the global online retail market share.

Online sales represent about 67% of Amazon’s revenue, as the company’s has diverse revenue stream spanning over Cloud (AWS), IoT, smart home and mobile devices. Amazon’s CAGR over the last 10 years has been 24.8%.

Public cloud infrastructure is another major catalyst for Amazon. Public Cloud is expected to grow at a CAGR of 19% over the next three years. Amazon.com has about 75% of US market share in the Cloud. While it is true that Microsoft and Salesforce are expanding their market share pretty rapidly, we don’t see any long term threat to Amazon’s Cloud business. Amazon Web Services annual growth rates in 2015 and 2016 came in at 70% and 55%, respectively.

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Amazon’s latest blockbuster acquisition of Whole Foods is a major turn in the company’s strategy to ramp up its operations in the brick-and-mortar grocery stores ecosystem. With the acquisition, Amazon has tapped into the middle-class of the US which loves to get their groceries from physical stores.

RBC analyst Mark Mahaney recently upped his estimate for Amazon’s 2018 profit by 10%. Maheny’s forecast also boosted the 2018 EPS target to $9.79 and revenue target to $224 billion. The analyst noted that 2017 online retailer growth is set to increase by 1%. He expects Amazon to keep increasing its market share, especially after its next-day and same-day delivery programs.

Amazon’s excellent fundamentals have been the catalyst behind its growing operating profit margins. Within its niche, Amazon has practically no competitors. Walmart makes just 2.8% of its total revenue through eCommerce. Amazon is swiftly leveraging its market dominance to further penetrate the lucrative industry. Amazon has about 58 Infrastructure Availability Zones where over 2.65 billion online visits are analyzed to improve online shopping suggestions.

Amazon stock has pared gains over the last few weeks and the price retreated under $1000. The latest dip could be an excellent buying opportunity.

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