Amazon.com Inc. (NASDAQ: AMZN) has been the dominant market force with more and more people turning to online commerce, which has been especially evident this holiday season. Not to mention, Amazon’s cloud platform is one of the biggest in the industry, with huge potential for continued growth. Considering all this, an analyst just released an updated look on Amazon on the eve of the New Year.
Independent research firm Argus noted that the number of Amazon items delivered with Prime one-day and Prime same-day delivery nearly quadrupled from the prior year. The firm believes the speed and reliability of Amazon shipments represent a sustainable competitive differentiator that will continue to grow in importance.
Like other massive technology companies, Amazon faces increased regulatory scrutiny, including pressures to “break up the company.” Argus does not anticipate any imminent changes in operating structure related to political forces, but there could be increased efforts to sever Amazon’s web services and electronic products business from its retail operations.
Even with a late-year catch-up, Amazon has underperformed the market in 2019, partly because of margin pressures related to one-day shipping and Prime Video program development. Amazon’s long-term success has come from thumbing its nose at Wall Street’s conventional metrics.
Ironically, this strategy ultimately led to the profitability that caused Amazon to explode higher in 2017 and 2018. Argus believes that current investments will be similarly validated. In this time, Amazon has proven itself with its ability to leverage vendor relationships in the retail space, a thriving connected-home platform and market dominance in cloud infrastructure as a service (IaaS).
In the report, Argus detailed:
From an investor perspective, the more immediate concern is about margins. Amazon faces higher costs from implementing one-day and same-day delivery. It is also spending to create more Prime Video content that can stand out in an increasingly crowded streaming field, now that Disney and Apple have introduced new services (and with NBC’s Peacock coming in 2020). In 3Q19, Amazon’s cost of goods and fulfillment costs both rose faster than revenue. As a result of this mainly North American-based effort, North American operating profit (excluding AWS) declined 37% year-over-year.
As a result, Argus reiterated a Buy rating with a $2,250 price target, implying an upside of nearly 22% from the most recent closing price. It’s worth noting that this price target is above the consensus target of $2,167.56.
Shares of Amazon traded at $1,840.94 on Tuesday, in a 52-week range of $1,460.93 to $2,035.80.
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