Amazon: Growth Investments Will Lead to More UpsideAMZN) has been on a terrific run so far this year. The e-commerce giant is already up 67% this year, and I won’t be surprised if the company continues to outperform going forward. The reason behind my bullishness is simple. Amazon is growing at a fast pace and it reported growth of 20% in revenue last quarter, and expects its performance in the ongoing quarter to increase in the range of 13%-24%.
More importantly, along with revenue growth, Amazon is also improving its margin performance. Last quarter, the company’s non-GAAP consolidated segment operating income came in at $1.075 billion, an increase of 166% from $404 million during the same period last year.
The way ahead
Going forward, Amazon.com is focused on generating superior cash flow from operations by optimizing its cost structure. To achieve this, the company will be controlling its non-core expenditures and try to deliver attractive year-over-year return on invested capital. More importantly, apart from optimizing its cost structure, Amazon is also making moves to enhance its customer base and increase revenue.
For instance, by organizing an international shopping event and providing better deals on Black Friday to its key customers, Amazon is taking the right steps to enhance its financials. In addition, Amazon has strategically introduced Prime free same-day delivery in 14 U.S. metro regions, catering to over 500 towns and cities. In addition, Prime Now has penetrated to three extra cities that include London. The company has also launched Amazon Echo, which is an innovative device sensitive to voice signals and has recently gained significant customer traction.
In addition, Amazon has also announced the launch of the Alexa Fund, which is a cloud-based voice service that facilitates Echo. Amazon will invest approximately $100 million to assist manufacturers, developers, and start-ups of varied sizes to develop and deliver new experiences crafted over human voice. Amazon.com has released the Alexa Voice Service to external hardware makers, offering them with tools to consolidate Alexa into internet-connected devices. In addition, Amazon’s investment in data centers, fast delivery services, and innovative video programming will help it attract more customers.
Amazon is growing at a rapid pace. After going through the points discussed above, I think Amazon will be able to continue its impressive growth rate as the company is investing in key growth areas. Of course, Amazon is an expensive stock to invest in, but the company’s impressive growth prospects will allow it to sustain its impressive performance in the future.
Another point of concern that investors might have about Amazon is its debt-laden balance sheet. Amazon has a sizable debt position of $17.95 billion. However, the company carries a respectable cash position of $14 billion, and its high debt is a result of the various growth investments that it has made over the year. As such, I think that investors should remain invested in Amazon for the long run due to its strong potential.
Published on Sep 15, 2015By Ayush Singh