by Matthew Smith
In the technology industry, many companies continue to expand to provide a wider range of services to its customers. Amazon.com (AMZN) is one that has done this, so there are a lot of aspects of the company to pay attention to. As a whole, however, Amazon is continuing to improve its services and has been in the news mostly for positive reasons. I think this company will continue to be strong, and as a result, I believe Amazon stock will be on the rise in the near future.
With a current P/E ratio of 179, Amazon stock looks overvalued. However, based on Amazon's recent moves, I do not think this is the case. The company is taking steps to boost its bottom line by enhancing its services. For example, the company recently improved its Amazon Web Services (AWS). Companies use AWS for a variety of purposes, and Amazon has made this even more possible by lowering rates for premium tiers and adding 24-hour customer service to the free basic tier. This will help Amazon improve its market share, as its services will become even more attractive to customers and businesses. Amazon is also expanding another part of its business as well, as it recently upgraded three of its Kindle apps to support children's books, comics, and graphic novels. It will have over 1,000 children's books and comic books available to readers. Comic book and graphic novels will be available in Kindle Panel View, which provides the ability to magnify any panel to see it better.
I think this is a great addition that will help the kindle immensely, since these kinds of books seem to be very popular today. Parents and younger readers will certainly appreciate it, and older readers of comics and graphic novels will also be pleased. The Kindle Panel View seems unimportant, as I think it is impossible to magnify panels without hindering the overall effect of the page's artwork. Providing this option, however, will allow the books to still be enjoyed by people with worse vision.
While these changes should help the Kindle e-reader perform better in the market, a recent collection of data has shown that Barnes & Noble's (BKS) Nook has passed the Kindle Fire in Web traffic impressions. It is particularly important that Amazon makes some changes, therefore, to improve its product. The additional content will hopefully achieve this, but this will certainly have a negative impact on the stock at the moment. Barnes and Noble stock, on the other hand, should do quite well as a result of this news.
The company has also been in the news with the ongoing race for Internet domain names. Amazon is one of the largest bidders, requesting 76 new domain names like ".kindle" and ".amazon" for next year. Google (GOOG) has also been participating in this race, as it has requested 101 domain names. As many big companies have not been acting similarly, however, many wonder whether or not these efforts are truly worth it. This will be an interesting situation to watch as it plays out, but I do not think anyone has good enough of an idea about how effective this will be. As a result, I expect this news event to have a very neutral impact on Amazon and Google stock.
When looking at the popular e-commerce component of Amazon's business, it has been in the news for something that is a little more troubling. In the United Kingdom, Amazon has cancelled all pre-orders of Nintendo's Wii U, which was mistakenly listed at the price of 199 pounds. Some have speculated that the actual price will be around 280 pounds, which makes this a real issue. This will lead to angry customers, as they expected to get the product for this low price. In long run, this should not have any real effect on the stock, but these problems should not happen. For the time being, this will have a slightly negative impact on the stock, and hopefully, Amazon will not make similar mistakes in the future.
Its competitor eBay (EBAY) is doing quite well and is looking to expand even further. It has struck a deal with Comcast (CMCSA) and TiVo (TIVO), and this will benefit all three companies. eBay's PayPal service will be used with the services of these two companies to allow television viewers to make purchases and donations with their remote controls. All three stocks should be positively influenced by this, but it should have little effect on Amazon stock.
One more important aspect of Amazon is its online video streaming business, and it may be making significant improvements in this area. It has recently signed a licensing deal with MGM, which will bring hundreds of new movies and shows to Amazon's library. The number of quality movies is a critical factor in this industry, and although it may not be at the top of the industry, this will help Amazon get closer and greatly improve its services. As a result, this should have a positive effect on the stock price.
Netflix (NFLX) is the main competition that Amazon has to consider with the online streaming market. While it may not be making large moves in recent news, Netflix is currently testing a new design to its layout. It may begin putting movies and television into separate tabs, and it is trying to learn whether or not this would increase overall usage. I have doubts that this would have any significant impact on usage, but it does make sense, as it separates everything in a much neater fashion. Netflix may also benefit from the upcoming release of the Wii U, as the early response to its app has been very positive. As it is making consistently strong moves to maintain its edge over the competition, I do not see Netflix fading away anytime soon. I expect Netflix stock to increase, but this may not happen until these events begin to develop further.
While its competitors have been doing well, Amazon still looks like a strong company at the moment. It is expanding AWS, improving its Kindle library, and adding to its online video streaming library as well. The bad news for Amazon is mostly inconsequential, and I believe the company will be able to bounce back from all these events. I believe the good news outweighs the bad news for Amazon, and as a result, I expect Amazon stock to be going up in the coming months.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.