Since Amazon.com (AMZN) does not offer a dividend to its investors, and it endured a 35 percent drop in net income for the first quarter, I cannot outright support buying Amazon stock at its current share price. However, if Amazon stock pushed on that floor price again, even if it only gets to $180, I would consider buying its stock.
Amazon, however, seems intent on continuing its success via expanding technology and improving its revenue streams. Amazon moved away from its online bookstore original business model when it started selling the Amazon Kindle, which has become the most popular e-reader. Furthermore, Amazon earns revenue every time a Kindle user buys a book, movie, or game on Amazon.com. However, the Kindle is outmatched in the tablet race by Apple's (AAPL) iPad.
Recently, Target (TGT) announced that it would stop advertising Amazon's products, mainly its Kindle, and speculation is that the company will begin to focus on Apple products, specifically the iPad and the company doesn't want to mix the two. This is indicative of the split with these tablets and Target's move may become a trend for stores to specifically market only one major tablet product.
While Amazon's Kindle has found success, it is not without competition in the e-reader market. Microsoft's (MSFT) investment of $300 million into a join venture with Barnes & Noble (BKS) will give Microsoft about an 18% stake in Barnes & Noble's e-reader the Nook. While the Nook is already competitive with the Kindle, this joint venture should give it a little extra push, which I think will hurt sales for Amazon's Kindle.
One of the most intriguing aspects of Amazon is its expansion into instant streaming home entertainment. Microsoft recently announced that Amazon's Instant Video service is going to be accessible via an application on the Xbox 360. For Amazon's "Prime" service, $79 per year gives users access to an additional 17,000 videos or television shows - on top of the 120,000 titles accessible to any Amazon Instant Video user.
Although Amazon Instant Video is not yet at the level of Netflix (NFLX) when it comes to online streaming, this deal with Microsoft, along with some other key partnerships may allow it to achieve such success. Amazon expanded its library of movies when it announced a three-year agreement with Paramount Pictures. This comes on the heels of Amazon signing major deals with CBS, Fox and Disney last year and Viacom earlier this year. If Amazon can amass a large collection with demand for shows, it'll start to rival Netflix here.
This comes at the same time that competitor Netflix has recently lost its contract with Starz, accounting for over 1,000 videos and television shows that were offered through the Netflix instant streaming.
Amazon seems to be making key moves in attaining instant streaming success, but the fact that Netflix is still at the top of the field, and that it is a saturated market means Amazon still has some work to do before they really have a firm market position in instant home entertainment. It will not be easy for Amazon to increase revenues, and in turn, shareholder value, via its home entertainment industry.
While Amazon has done well in its instant streaming moves and needs to keep doing so to be successful, the beauty of this company's business model is that there are many streams of revenue for them to capitalize on. For example, Amazon is able take on the high-end clothing business with its online retailing store. Since its costs are not much different if they are shipping a book, a Kindle, or an extremely expensive dress, Amazon has recently been focused on signing contracts with high-end, expensive, brands.
Amazon Inc.'s main competitor in the online retailing industry is eBay (EBAY), which is the world's largest online marketplace. eBay's stock price had risen 37 percent this year, until it dropped about 4 percent recently. Furthermore, it appears that EBay will fall short of Bloomberg's revenue and net income estimates, which is a rarity for the online seller.
According to Herman Leung, an analyst for Susquehanna International Group, "They usually beat the high end. If they come in within range, for eBay, that's a miss." Amazon investors should take comfort that Amazon's major competitor in the world of online retailing has also reported faltering numbers - this does not suggest Amazon is solely at fault for worsening numbers, but that the economy has likely lead consumers to afford less online shopping.
In summary, Amazon.com is, in fact, a very attractive company for investors who are looking for a high growth opportunity. The company has done a great job in taking on new revenue streams, like high-end fashion, within its online retailing. It has also done a great job expanding into new segments, like its instant video service - even though it is an over-saturated market and Amazon's future in it is uncertain.
However, Amazon's poor first quarter numbers, relatively high stock price, and the volatility of its stock lead me to believe that Amazon stock will drop in price. While I do believe Amazon is a strong company overall with a bright future and higher stock prices in the long-term, I foresee further declines in its stock price in the near term. Once the price per share drops further, I may be inclined to purchase stock in Amazon.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
