The article was written by Motek Moyen Research Seeking
Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.
בניגוד לעליבאבא (BABA) הצמיחה של אמזון (AMZN) לא נחלשה ,הראשונה נפגעה עקב מלחמת הסחר המתמשכת עם סין . התוצאות המדהימות של הרבעון האחרון של אמאזון . והשנה הכלכלית בכלל , שכנעה אותי שענקית הסחר הולכת להשאר בשיעור צמיחה דו ספרתי למשך שנים רבות . אמנם הכלכלה הסינית הולכת ודועכת , אבל חשוב לזכור שהחשיפה של אמאזון אליה היא כמעט אפסית.
:Summary
I Know First has slightly bearish algorithmic forecasts for AMZN. I am still endorsing this stock as a decent long-term investment.
My last previous buy recommendation for AMZN was in December 27. The stock has since returned more than 8%.
Amazon still offers the best risk/reward opportunity. The FY 2018 earnings report convinced me that Amazon’s hyper-growth story is still intact.
The laser focus on long-term growth is finally delivering a surge in net income. Amazon’s FY 2018 net income of $10.1 billion was more than 230% growth over FY 2017’s $3.0 billion.
Alibaba’s growth is slowing down but Amazon’s momentum seems to be immune from Trump’s trade war with China.
Unlike Alibaba (BABA), Amazon’s (AMZN) growth momentum has not weakened. Alibaba’s growth is decelerating because of Trump’s continuing trade war with China. Last week’s outstanding Q4 and FY 2018 performance convinced me that Amazon’s high double-digit sales growth rate will persist for many years to come. Yes, China’s economy is markedly slowing down but Amazon has almost zero exposure in that country.
It is true that many third-party sellers on Amazon imports their products for sale from China. Amazon’s own brand of products are also made and imported from China. However, the European and North American loyal customers of Amazon still bought more goods. In spite of the Trump vs. China cold war, Amazon still posted a +31% Y/Y growth in revenue to $232.9 billion. Net income rose more than from 2017’s $3.0 billion to 2018’s $10.1 billion.
As you can see from the chart below, Amazon’s laser focus on long-term revenue growth is finally translating into better net income performance. Amazon’s e-commerce driven business still operates at a very low operating TTM margin of 5.33% but it still more than tripled its net income last year. This is likely due to the higher margins from its AWS cloud computing business. It could also be thanks to better efficiency in distribution and delivering of its products.
(Source: Statista)
Amazon’s outstanding net income performance last year validated Jeff Bezos’ core strategy of emphasizing sales growth over profit margins. Historically, Bezos is now the world’s richest individual (net worth of $150 billion) because investors pushed Amazon’s stock price to over $1,600. The low-margin approach to online selling made Amazon the world’s number one e-commerce operator. Now that it is the goliath of e-commerce, Amazon is quickly improving its bottomline via economy of scale.
Not one of its peers managed to replicate Amazon’s more than doubling of annual net income. This is why AMZN still touts higher valuation ratios than FB, GOOG, and MSFT. This can only mean that more institutional and retail investors believes in the long-term prosperity of Amazon when compared to its Technology Sector peers.
(Source: Seeking Alpha)
The stock market darling status of AMZN is compelling reason to add more shares. It might even be smart to sell most of your AAPL to buy more AMZN. My fearless forecast is that AMZN will outperform AAPL for the next 12 months. The problem with Apple is that it is overly exposed to China. The continuing Trump vs. China cold war gives AAPL a massive headwind.
The Tailwinds of Amazon
Amazon rules the U.S. market and that country’s e-commerce retail business is still growing fast. Just study the chart below and you will also realize that Amazon has a massive moat in a growing e-commerce market, America. Walmart (wMT) has a growing e-commerce business but it can no longer catch up with Amazon.
(Source: Statista)
Yes, Amazon still trails Alibaba in terms of global Gross Merchandise Value (GMV). However, Amazon will eventually develop its Business-to-Business (B2B) e-commerce segment. Alibaba’s emergence as runaway leader in B2B was due to the fact that most goods in the world today are manufactured in China. However, as more companies build factories in other Asian countries like India, Indonesia, Vietnam and Philippines, Alibaba’s global supply chain for B2B will get diminished by Amazon Business.
(Source: The Motley Fool)
As you can see from the chart above, only Alibaba is rated a real B2B e-commerce operator. This scenario is not going to last forever. Amazon Business will become a viable alternative for B2B within the next three years.
Further, the smartphone industry (which is responsible for more than 60% of Apple’s revenue) is now in clear decline. Unlike Apple and Google, Amazon is not selling its own brand of smartphones. Amazon’s ecommerce business exposure is therefore compelling reason to buy dump AAPL in favor of buying more AMZN shares.
Conclusion
I opine that the fast-growing (but low-profit margin) e-commerce business is helping Amazon finance large-scale rollout of its cloud computing business, AWS (Amazon Web Services). Since cloud computing is obviously a higher-margin endeavor than online retailing, Amazon’s impressive bottom-line growth is coming from AWS. AWS still the runaway no.1 cloud computing service provider in the world.
It is a very symbiotic tactic. Bezos is using the strong revenue growth from its e-commerce business to scale out the more profitable AWS business. The more profit that Amazon makes from AWS, the more money it can use to scale out the internationalization of its e-commerce websites.
AMZN has a slightly bearish market forecasts from I Know First. I am still rating AMZN as a buy for long-term growth investors. We should all attempt to enrich ourselves through Amazon (like what Bezos is doing right now).
