Is Amazon stock ready to run again?
FAANG stock investors seem to have plenty to worry about these days, what with predictions of a recession around the corner, continuing trade battles between the US and China and US lawmakers stoking the antitrust fires around the tech giants.
But Amazon (Amazon Stock Quote, Chart, News NASDAQ:AMZN) should really be on your list of sure bets, according to portfolio manager Shane Obata, who says the e-commerce behemoth has a clear path to worldwide dominance.
“Amazon is a great company,” said Obata of Middlefield Capital in conversation with BNN Bloomberg on Friday.
“It’s a very interesting situation where you basically have multiple businesses under one roof. The higher margin businesses such as AWS and now advertising is starting to build up, these businesses basically subsidize and help build out the retail business, which has also been very successful.”
“We like the setup in that we think that e-commerce is still going to continue to grow. Amazon is a real player in advertising now, and cloud, even if it slows down a little bit will continue to power ahead,” he says.
For a number of years, Amazon’s rising share price was a sight to behold as it soared from sub-$300 territory in 2014 to above $2000 by the summer of 2018. Yet the stock has had trouble maintaining those heights, twice now falling precipitously after peeking above $2000 per share. And AMZN seems to be ending September on a bum note, currently down three per cent for the month.
Investors will be looking for better in October with the release of Amazon’s third quarter results expected later in the month. The market reacted poorly to the company’s Q2 delivered in late July, which featured a consensus beat on revenue but a miss on earnings.
Repeating its past play of plowing money back into investments, Amazon posted EPS of $5.22 per share in comparison to analysts’ expected average of $5.57 per share on a top line of $63.4 billion, which was better than the consensus guess of $62.5 billion and represented a 20-per-cent year-over-year growth rate.
“Customers are responding to Prime’s move to one-day delivery — we’ve received a lot of positive feedback and seen accelerating sales growth,” said Jeff Bezos, Amazon founder and CEO, in a press release on July 25. “Free one-day delivery is now available to Prime members on more than ten million items, and we’re just getting started. A big thank you to the team for continuing to make life easier for customers.”
Obata says that although Amazon’s push for one-day shipping is causing some stress for the company the longer-term prospects still look good.
“Amazon has clearly emerged as the top player in cloud by a long shot and we think that they will continue to hold that as well,” says Obata. “The one near-term concern for Amazon is with the one-day shipping. You may see incrementally lower margins in the near term but we think that it will play out over time and that stock will continue to do well, especially because we’re already seeing demand pick up, as you would expect from the one-day shipping,” he said.
“One-day shipping is opening up new avenues as well — perishables and stuff that you might not have otherwise bought [from Amazon],” he said.
Disclosure: Cantech Letter’s Nick Waddell owns shares of Amazon