Amazon Seen Dominating In Global Rise Of E-Commerce, Cloud Computing – Investor's Business Daily

September 29, 2016 Facebook Twitter LinkedIn Google+ Uncategorized

Amazon (AMZN) is positioned to be the foremost beneficiary of two of the most important secular trends in the global economy, says Nomura, which resumed coverage on the company Wednesday with a buy rating as the stock hit an all-time high yet again.

Nomura analyst Anthony DiClemente, in a research note, said the two trends are: 1) a shift of consumer spending away from traditional bricks-and-mortar retail and toward e-commerce and 2) the ongoing conversion of enterprise software spending away from on-premise deployments to cloud deployments.

In addition, DiClemente said Amazon continues to aggressively invest in content for Prime Instant Video in order to support the Prime ecosystem, which should allow the company to gain share in the U.S. media market, presenting a threat to Netflix (NFLX).

“There are few, if any, companies globally that, like Amazon, can claim the leadership position of two massive secular economic tailwinds,” DiClemente wrote. While Amazon has traditionally been an e-commerce giant, the software roots upon which the company was founded allowed Amazon to gain a first-mover position, he said.

“We estimate that between 2008 and 2015, Amazon Web Services revenue grew at an 85% compound annual growth rate, increasing from about $105 million to $7.8 billion as of 2015,” he wrote. “We estimate that AWS currently operates in a total addressable market greater than $25 billion.”

Amazon competes in the web services market against Microsoft (MSFT,) Alphabet (GOOGL), IBM (IBM) and others.

Amazon also has an advantage with its Prime membership business, a $99 annual membership program that includes benefits ranging from free two-day shipping to bundled access to Prime Instant Video to 2-hour shipping on select goods.

“Prime has built a better mousetrap for retail in terms of both selection and convenience,” DiClemente wrote.

He said Amazon’s continued investments in the overall Prime value proposition has supported ongoing growth in online sales of electronics and general merchandise (EGM). He estimates EGM revenue, which makes up the bulk of Amazon sales, will grow 30% year over year in 2016, “on the already massive revenue base of greater than $50 billion.”

DiClemente has a buy rating on Amazon and a price target of 950.

Amazon stock closed at 828.72, up 1.6%, in the stock market today, and it touched an all-time high of just under 829. Wednesday marks the fourth trading day in the past five that Amazon stock has touched a record high.

IBD’S TAKE: Amazon — which was added to the IBD Leaderboard list on March 29, when it closed near 593 — has staged solid gains since breaking past a multiple number of entry points, the most recent of which was a second test of its rising 50-day moving average near 760. Learn more about why Amazon continues to lead.

DiClemente says Amazon will successfully replicate its U.S. business model internationally by focusing on continued investment in its Amazon Prime services.


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