The article was written by Blair Goldenberg, a Financial Analyst at I Know First, and enrolled in a Masters of Finance at Colorado State University.

Amazon Stock Analysis

Summary

• Amazon’s Background
• Amazon Taking Over the Retail Market
• Amazon Prime
• Amazon Revenue
• Price Drops on AMZN stock
• Analysts Recommendation

Background

Amazon.com, Inc. (AMZN) is an American electronic commerce and cloud computing company with headquarters in Seattle, Washington. It is the largest Internet-based retailer in the world by total sales and market capitalization. Amazon.com started as an online bookstore, later diversifying to sell DVDs, Blu-rays, CDs, video downloads/streaming, MP3 downloads/streaming, audiobook downloads/streaming, software, video games, electronics, apparel, furniture, food, toys and jewelry. The company also produces consumer electronics—notably, Amazon Kindle e-readers, Fire tablets, and Fire TV—and is the world’s largest provider of cloud infrastructure services (IaaS). Amazon also sells certain low-end products like USB cables under its in-house brand AmazonBasics.

Amazon Taking Over the Retail Market

In recent years, Amazon has successfully revamped its platform on numerous occasions. It has effectively beaten its competition, essentially rendering eBay obsolete in North America. This upcoming year, Amazon’s new revamp will showcase its fashion line. It is projected to become the leading clothing retailer in the United States, beating Macy’s Inc. for their spot as number one.

Cowen’s report states that Amazon’s clothing and accessory sales will increase about 30% next year to $28 billion, while Macy’s sales are forecast to decline 4% to $22 billion. Cowen also estimates that Amazon’s clothing sales will jump by 182% in the next five years from 2016’s $22 billion to $62 billion in 2021. In other words, the e-commerce giant’s market share will surge from 6.6% to 16.2% by fiscal 2021. Cowen also inferred other brands including TJ Maxx, which is expected to become the second clothing retailer with projected sales of $26 billion, while Macy’s is expected to come in third, with estimated sales of $23 billion.

Amazon stock had its “overweight” rating restated by equities research analysts at Morgan Stanley in a research note issued to investors on Saturday. They presently have a $950.00 target price on the e-commerce giant’s stock. Morgan Stanley’s price objective would suggest a potential upside of 22.37% from the stock’s previous close.

The shortcoming with buying apparel on Amazon is that customers can’t try on anything that they buy until they’ve already spent their money on it. This is where the traditional retailers have an advantage. However, the convenience of Amazon may outweigh the inconvenience of traditional shopping.

Amazon Prime

Most retail companies offer free shipping to their customers in store if a product they want is needed in a different size, they also offer their own online stores. So, why is Amazon so much more convenient? The answer is Amazon Prime. Amazon Prime is a subscription that costs $99 a year for customers. The perks of paying the $99 and becoming an Amazon Prime member is that they offer quick and free shipping (2 day) on select items. Amazon Prime offers other perks such as free access to Amazon Video and the ability to borrow books from the Kindle Owners’ Lending Library. The other retailer’s online stores do not offer free 2 day shipping, most offer free shipping only if the consumer has purchased more than a certain amount, whether it be $50 or $100.

Amazon is now setting its sites oversees to China. Chinese Prime subscribers get free shipping on orders exceeding 200 yuan ($29.50) on millions of eligible overseas goods. Domestic goods will also be delivered free and a membership costs 388 yuan a year, lower than the U.S. fee of $99. However, Chinese Prime members will not receive access to any digital content, such as Amazon Video.

Research firm Consumer Intelligence Research estimated that Amazon has 65 million Prime members, double the number it had two years ago.

Amazon Revenue

So far this year, Amazon received $32.7 billion in revenues, an increase of 29 percent from last year’s figures, and an EPS of $0.78. Goldman Sachs Group Inc. (GS) analyst Heath Terry raised the price target for Amazon to $1020 from $950 on Monday. He expects Amazon to report a 60% year-on-year growth in its cloud business this quarter. In monetary terms, this translates to $3.3 billion in revenue for the Seattle company.

After Thursday’s closing bell, the e-commerce giant reported earnings of 52 cents per share, missing analysts’ estimates of 78 cents per share. Revenue rose by 29% year-over-year to $32.71 billion, slightly topping expectations of $32.69 billion. Though this seems to show that Amazon’s dropping in popularity, the real reason is that Amazon is investing more into its Amazon video platform to take on TV web subscriptions such as Netflix (NFLX) and Hulu (HULU).

Price Drops on AMZN Stock

Shares of AMZN are down $45.33, or almost 6%, at $773.03, after the company yesterday afternoon reported Q3 revenue in line with consensus and EPS that fell far short, and forecast revenue this quarter lower as well, driving its shares down 6% in late trading. But as stated above, the reason is simply because the company is investing in improving itself.

Analysts Recommendation

Conclusion

Amazon is a staple for many American families. The price drop in AMZN is a blessing for investors. Right now is the perfect time to invest because will see a steady rise in AMZN stock as time passes, with Morgan Stanley now on board with the projections. Amazon will continue expanding every aspect of the company, including oversees, and as it expands, more people will gravitate to their web page rather than using traditional means of shopping, watching television, etc.

The forecast is color-coded, where green indicates a bullish signal while red indicates a bearish signal. Brighter greens signify that the algorithm is very bullish as it does at the top of this forecast. The signal is the number flush right in the middle of the box and the predicted direction (not a specific number or target price) for that asset, while the predictability is the historical correlation between the prediction and the actual market movements. Thus, the signal represents the forecasted strength of the prediction, while the predictability represents the level of confidence.

 

Past IKF Predictions on AMZN

In the past, I Know First has predicted correctly the bullish signal for AMZN stock movement, as seen in the forecast from April 15^th, 2016. AMZN had a bullish signal of 225.37 and a strong predictability indicator of 0.24 managing to bring decent return of 25.06% in 6 months.