Should You Consider Amazon on the Pullback

2016 was off to a terrible start as most stocks lost considerable value in the first few weeks. However, the market has reversed its downturn over the last few days and has staged a terrific recovery. The S&P 500 is just not a long way off from breaking even year to date. However, despite the recent rally, the market has been tougher on growth stocks.

Many growth stocks are still down considerably this year and Amazon (AMZN) is no exception to it. With the market reversing its trend, I think investors can consider buying the likes of Amazon as the stock is still down 15% for the year.

Why Amazon Prime matters

2015 was an amazing year for Amazon, as the stock surged over 100%.
While Amazon is not off to a good start in 2016, the company is making some noteworthy progress. In particular, the success of Amazon Prime is striking and it can contribute to Amazon’s upside going forward.

Amazon Prime provides access to Prime Music and Prime Video, free two-day shipping, and much more. Amazon Prime plays a significant role in the company’s long, as well as short-term success.

Moreover, the company is looking for new ways attract customers for its Prime service, which is exactly how technology investors should understand one recent move from the company.

Amazon has a strong hold on Prime subscribers, as its subscribers list recently surpassed the 40 million mark. As per Amazon, its non-Prime customers spend approximately $625, whereas its Prime customers spend around $1,500 on Amazon yearly.

Amazon recently surged the minimum order amount for non-Prime from $35 to $49 per order to avail the free shipping service. This move, together with the 2014’s decision of increasing annual Prime subscription charges will boost Amazon’s earnings which is important to the company’s long-term prospects.

E-commerce represents 7.5 percent of entire retail sales in the U.S, a market with comparatively developed ecosystem related to the rest of the world. According to a report from eMarketer, the worldwide e-commerce sales justified for only 6.4 percent of entire retail sales previous year. In terms of Amazon Prime, the service helps provide as much enticement as possible to shop through Amazon. Therefore, Prime acts as an amazing tool to help boost the company’s market share growth

However, the minimum order amount price surge should be taken as an attempt to drive more customers to become Prime subscribers. It indeed speaks to the significance the company places on Prime within its long-term business plan.
Published on Mar 9, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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