In my previous article on Amazon (AMZN) 'The Levitating Amazon', I discussed how a small amount of events was responsible for the overall price action we are witnessing in Amazon today. In this article I am going to take a contrasting view to talk about what Amazon could do to sustain upward movement.
The first thing we need to look at is Amazon's revenue, since this is what Amazon constantly talks about.
This seems to be the start of what could be an exponential curve, but until the curve actually turns up, it is impossible to know for sure. However, the above chart doesn't look as pretty in the shadow of the next chart.
Like an airplane spiraling down and crashing. As bad as the above chart may be, in order to increase its Net Income to an all time new high and generate a threshold event that would push the stock higher, Amazon would need to increase its profit margin by 2%. This is not to say it would suddenly become good value, but this event in itself could trigger higher price movement.
Could Amazon increase its profit margin by 2%? It seems unlikely with its given trends but let's look for a potential glimmer anyways.
The Hope Of Amazon
There is hope that could potentially shoot up Amazon's net income and prove all the longs right and that is in its Net Services Sales.
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Amazon's sales from services in the past 9 months from September has doubled whereas its total operating expenses in the same time period only increased by 31%. Since sales of services do have less expenses associated with them, there is a strong potential that if Amazon's services continue to increase at a similar rate, then this could increase the company's Net Income.
If it is possible that Amazon could again double its net service sales numbers, Amazon could suddenly see a large net income pop. This might not make its fundamentals significantly better but it might be enough to keep the longs happy.
As stated in my previous post, Amazon likes to defy gravity and this defiance is somewhat regular. If you really can't let go of a long Amazon position you're holding then the net services sales number is the thing to watch. If you're considering either buying or selling Amazon, tread cautiously.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.