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Amazon Still On Top of Online Retail Wave

6 May 2015 in Trading Ideas

While consistent profit growth is a goal for most companies, Amazon.com has never pretended it’s a priority.

The company has had profitable quarters, but when it hasn’t, investors have usually been given something else to believe in.

In its latest quarter (one that ended up generating a $57 million loss), that something else was sales growth of 15% to $22.5 billion, as well as the revelation that the company’s Amazon Web Services cloud-computing business saw revenue surge 49% to $1.57 billion.1

Amazon’s stock rose after the report – as it had after the previous quarter three months earlier – and is now up 36% so far in 2015.

Amazon’s 21.1% weighting in the Couch Commerce motif has also been a boon for that investment: the motif has gained 7% in the past month. In that same time frame, the S&P 500 has risen 1.7%.

Over the past 12 months, the motif has increased 20.9%; the S&P 500 is up 14.5%.

Without question, Amazon is the flagship in what has become a secular increase in online shopping.

According to a forecast from Forrester Research last year, US e-retail sales are expected to grow from $263 billion in 2013 to $414 billion in 2018, a compound annual growth rate of 9.5%. Further, e-retail’s share of total retail sales will continue to inch upward, from 8% in 2013 to 11% in 2018.2

Forrester said that increased shopping by consumers on mobile phones and tablets will help propel the growth. Increased spending by digital natives — consumers who grew up using the Internet from their earliest years—will also contribute to growth as they move into their prime spending years. Consumers between 25 and 33 years old (Gen Y) already spend more online than any other age group, an average of $563 in the last three months, according to Forrester data.

Today, the 69% of US adults that regularly shop online buy about 16% of their products via that medium.

And while Amazon is spreading its talons over other tech sectors like the cloud and hardware, it’s worth noting that the company’s continual go-to strategy of spending every penny it brings in has been significantly geared to protecting and expanding its online retail fiefdom.

As the Wall Street Journal pointed out, the company has maintained a steady drumbeat of new releases this year, including new cities with one-hour delivery by bike messenger, as well as a referral service to connect buyers to plumbers, roofers and other handymen.

Moreover, Amazon seems to be targeting retailers of all sorts – as the Journal noted, its new products seem intended to eliminate any possibility customers might shop at brick-and-mortar rivals. It has been expanding its Fresh grocery delivery service and released devices that can summon specific products to customer doorsteps with the push of a button.

For now, Amazon investors seem to be willing to forego signs of profit for the larger signals of online commerce growth.

1Greg Bensinger, “Amazon Swings to Loss Despite Jump in Sales,” wsj.com, April 23, 2015.

2Allison Enright, “U.S. online retail sales will grow 57% by 2018,” internetretailer.com, May 12, 2014, https://www.internetretailer.com/2014/05/12/us-online-retail-sales-will-grow-57-2018, (accessed May 4, 2015).

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    Reply

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