Amazon.com (AMZN), the world's largest online retailer, is still finding ways to expand and improve in spite of a shaky economy and stiff competition. For that reason, the stock will move above its current price of about $222 in the near future. With rumors running everywhere of speculative Amazon products (smartphones, mostly), the company will need to rely on expanding its core business to keep its price stable amidst new rumors and analysts predictions.
While I don't see this core business expansion bringing Amazon above its 52-week high of $246.71, I see no reason why the stock should sink anytime soon. With an EPS of only 1.22, the stock does not offer much potential of creating any enormous profit. It should still keep investors happy with a price set to see growth.
One of Amazon's most recent ventures has been in Britain, where Amazon's UK based movie streaming service, LoveFilm, has entered into an agreement with 20th Century Fox to the exclusive rights to distribute older episodes of popular TV shows such as Sons of Anarchy. This move for Amazon may only have a small impact on enhancing their revenue, but the likes of Netflix (NFLX) have shown that the movie streaming business can be very lucrative if approached correctly.
Indeed, when it comes to movie streaming, Netflix is undoubtedly one of Amazon's main competitors, and potentially one of its main influences in the industry. Much of the advantage that Netflix has exercised in its business venture lies in its ability to stream exclusive content to differentiate it from alternative options such as cable, DirecTV (DTV), and the like. Amazon's movie streaming, included with an Amazon Prime membership, could very well be described as the next generation of movie streaming service. Netflix may have revolutionized the television industry when it popularized movie streaming, but no longer will competing with alternative forms of television viewing be Netflix's main concern. Indeed, just recently Netflix requested assistance from U.S. lawmakers by providing some regulation preventing cable providers from limiting online data usage for its customers, which obviously poses some major issues for Netflix's business. As companies like Amazon begin to grow their streaming business, Netflix will have competition on a much more even playing field. For Netflix, the competition with alternative forms of television viewing along with competition in the movie streaming industry makes it a very high stakes fight for survival. For Amazon on the other hand, the majority of its revenue as a company comes from online retail, which puts Amazon in a very nice position to compete in this industry with a nice financial backstop for support, giving it a large advantage over competition like Netflix.
In many ways, the economic instability of late could in many ways prove to be beneficial to Amazon. Indeed, much of Amazon's success has resulted from it being a deep-discount retail store, which results from exceptionally low overhead due to the lack of traditional brick-and-mortar stores. Mass distribution companies such as Wal-Mart (WMT) and Costco (COST) have done very well due to their ability to provide the same product at a cheaper price than their competitors. Wal-mart in particular has made massive efforts to grow its workforce recently. This is possible because in a time of economic uncertainty, Wal-mart managed to continue doing business just like it always has because of its massive scale and discount prices. Likewise, this same ability remains a staple of Amazon that almost ensures its success over the coming years as we most likely exit the recession and begin to make some economic headway nationally and globally. Relatively recently we have seen the likes of Borders and Linens 'N Things go out of business due in large part to the lack of ability to match the low prices offered by mass distributors such as Amazon. Additionally, with the slow economy weakening the competition, it is likely that Amazon will be well positioned to continue to out-compete its competition in regards to product availability, affordable prices, and development of the company and its products. More traditional retailers such as Barnes & Noble (BKS) and Best Buy (BBY) will need to continue to undergo massive changes in order to keep up, and in that time of transition, Amazon will have the upper hand to a large degree.
With that being said, it will be necessary for Amazon to stick to its guns while breaking into new territory. Venturing into the specialty areas of Netflix or Barnes and Noble is fine for a company that needs to keep growing, but Amazon also needs to mind its roots in discount retail. Recently, Wal-mart has begun implementing a new practice of allowing customers to purchase items online and then pay in cash at any store location within 48 hours. This continued effort by Wal-mart to move its operation beyond the brick-and-mortar base to the online sales creates a legitimate threat to the cash cow that has been serving Amazon for so long. Another concern for the internet behemoth is continued competition in the tablet market. Google (GOOG) has just recently released its newest tablet, which offers stiff competition in the general tablet market, but seems most directly compared to Amazon's Kindle Fire. This new tablet from Google has only just been released, so it is too soon to see what sort of effect this will have, but the message is clear: don't get too comfortable Amazon. No niche is secure in this market.
The current outlook for Amazon and its stock is positive. It is positioned very well to outperform many of the smaller and more niche-specific companies such as Barnes and Noble, and is conversely secure enough in its market to withstand the constant pressure from larger competitors in the online retail business such as Wal-mart. Amazon will need to continue to evolve and progress as a company, but there appears to be no evidence it is not doing that on a daily basis. The rumors will swirl with smartphone news, leaks and speculations. This will happen and Amazon's price will be susceptible to each and every one that the press sees. Investors should stay calm if there are media storms, however, as Amazon knows how to keep its business model profitable. I believe the stock will keep moving up from its current $222 price. Based on the above reasons, I expect the stock to reach $225 within a 1 to 2 month timeframe. I urge investors to consider buying Amazon today.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.