Amazon.com is a company with a record of enormous revenue and a dismal bottom line and lucrative profit potential. Should you trade Amazon stock?
Amazon founder and CEO, Jeff Bezos, has a business philosophy of keeping the customer happy, irrespective of the cost.
His belief is that in this way, Amazon will build and retain a gigantic happy customer base which will then make the company profitable by the sheer volume of numbers.
The growth in revenue over the past 3 years has been nothing short of amazing, but unfortunately, the bottom line hasn’t followed the same trend.
Amazon, which ranks eighth with a market capitalization of $301.11 billion, is unique among the leading market cap companies as it works on tiny margins, relying on massive revenue to generate bottom line profits.
The question you need to ask is whether this approach is working or not and the answer will tell you whether this is the right stock for your portfolio. We will examine various aspects of Amazon to assist you in arriving at your trading decision.
Revenue
Since Amazon started trading in 1994 out a small office on the U.S. West Coast, founder and CEO since its inception, Jeff Bezos, has focused predominantly on growth rather than the bottom line.
He has the innovative nature and adventurous spirit to try and make the unconventional of others the company’s normal.
Looking at Amazon’s annual income statement over the last three years, adds credence to his beliefs with revenue in 2012 of $61 billion, which grew to $74.45 billion in 2013 and to $88.98 billion in 2014, which is the kind revenue growth that should make stockholders very happy.
Earnings over the last four quarters, which stand at $100.6 billion, include the fourth quarter of 2014. With the fourth quarter, which is traditionally Amazon’s best quarter still to come for 2015, revenue for the calendar year should not be less than $100 billion.
From an investment perspective, this appears to be a good stock to have in your portfolio.
Net Profit History
We have looked at the revenue or top line; now for the net profit or bottom line historical numbers. The financial statement for the year ended December 2012 shows a net loss of $39 million, for December 2013 a net profit of $274 million and for December 2014 again a net loss, this time of $241 million.
The quarterly results for the first three quarters of 2015 reveal a net profit of $114 million and with the last quarter historically very profitable, the outlook for 2015 appears satisfactory.
Amazon is not alone as one of the top cap companies that does not pay a dividend, but is rather intent on continual growth, making the stock an attractive buy from that aspect.
Additional Factors
Amazon stock appreciated from $323.05 on 17 November 2014 to be trading at $642.35 on the 13th of November 2015, which has certainly given investors good reason to be bullish about Amazon stock.
There is no dividend yield on Amazon and with the company still very much in a growth phase as part of the Bezos philosophy; no dividend can be expected in the near future.
Currently, the company is sitting on a cash pile of $17.42 billion, while it has long term debt of $16.9 billion and with an operational cash flow in excess of $6 billion, the company has a very healthy balance sheet.
While investing in Amazon for the dividend is not an option, the regular growth in the value of the stock will probably continue for some time as the revenue grows, which makes it a stock worth watching. In addition, if you are a binary options trader, you can also trade Amazon stock on leading trading platforms such as Banc De Binary.
Looking to the Future
The Amazon Prime Delivery project, which envisages delivery of orders in the U.S. by GPS guided drones within 30 minutes of an order, is still in the planning stages, but is indicative of the type of innovative ideas emanating from the company. There are a number of issues that need to be settled before this planned service can actually become a reality, such as the small issue of F.A.A. permission for drones to be flying around. Provisional permission for testing has however been granted. The other issues are more of a logistical nature such as access to apartment blocks for deliveries and the security of packages. Should this type of technology eventuate, it would put Amazon in a unique position in the online sales world and improve revenue further and would then also result in regular profitability for the company. This service, if successful, would underline Amazon’s dominance in the online sales space to an even greater degree.
Conclusion
The twelve month analyst target forecast for Amazon stock price is $729.13 which means there is still the potential for profit taking at the current price of $628.85 a share (as of the 16th of November 2015). Thirty out of 42 analysts polled have a ‘buy’ recommendation for Amazon while 7 recommend it as a ‘hold’, with 5 judging the stock as ‘overweight’. Any decision you make whether or not to add this stock to your portfolio would be dependent on your appetite for risk. Having said that, bear in mind that Amazon has an enviable record of growth and of achieving its long term objectives.
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