Investors Return to Amazon.com

Retail

Published: March 13, 2015 6:49 am

Amazon.com Inc.’s (NASDAQ: AMZN) shares sold off sharply after its most recent quarterly report. Revenue did not rise enough over the holiday season, analysts said. Once again, founder Jeff Bezos seemed more interested in smartphones and drones, while profit margins suffered. However, investors have flocked back to the stock in droves during the past two months, and there is no single explanation for why that has happened.

So far this year, Amazon’s stock has risen 21%, against a gain of less than 1% in the S&P 500. That has trounced the advance of many hot stocks of much newer Web 2.0 companies. Amazon’s advantage over these is that its business model has been proven over two decades, and at least one of its new investments has a very bright future.

ALSO READ: 4 Tech Stocks Dominate UBS’s E-Commerce Theme List

Retail sales at most brick-and-mortar outlets have stumbled recently. Not much positive can be taken from the quarterly reports of Best Buy Co. Inc. (NYSE: BBY) and Wal-Mart Stores Inc.’s (NYSE: WMT) Walmart.com. Amazon, even with slightly decelerating growth, holds the high ground in the retail industry. Due to its revenue improvement, probably its share of retail continues to grow.

Another edge Amazon has is its strong reputation for customer service, which routinely appears in research about the retail industry.

Amazon’s less obvious appeal to investors is the growth of Amazon Web Services, one of the leaders in cloud computing. It has a built-in set of customers due to tens of thousands of its storefront partners who use Amazon as the foundation for their traffic. No other tech company with a future that depends on the cloud has the same kind of advantage.

The cloud has become a benchmark for whether tech companies can support bright forecasts. Firms like International Business Machines Corp. (NYSE: IBM) and Microsoft Corp. (NASDAQ: MSFT) have told investors that the cloud is critical to future growth. So far, none of these companies has shown that it has a foothold in the sector that definitely will transform the sources of its revenue in the future. Amazon, on the other hand, can.

ALSO READ: Alibaba Moves Into Cloud Computing Business, Challenging Huge U.S. Tech Firms

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