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Amazon.com, Inc. (NASDAQ:AMZN) stock has bettered 2016 returns in 2017. Can AMZN stock deliver in 2018 as well?
Shares of Jeff Bezos led e-commerce giant Amazon (NASDAQ:AMZN) have defied gravity over the last five years except for a brief time in 2014. AMZN stock has multiplied almost 4x during this time period. With Amazon stock up nearly 56% in the year 2017 bettering the meager 10.95% returns in 2016, investors have high expectations heading into 2018. The Seattle, Washington based online retail giant had strong holiday sales in November and looks good to end the year-end holiday season on a strong note. Amazon has continued to invest heavily even with question marks over falling profits to remain on the high growth road. The question now is, with all the high growth initiatives, can Amazon stock deliver again in 2018?
Amazon could start the year on a high note.
The online retail behemoth is expected to report its holiday season quarter earnings sometime around the end of January 2018 or in the first week of February. The company could start the year with a stellar earnings release in terms of revenue generated. Ask us why? The answer lies in the Mastercard (NYSE:MA) SpendingPulse report, which tracks online and in-store spending. In the last year's fourth quarter, Amazon had reported a revenue of $43.71 billion, up 22% YoY. In Q4 2017, the company is expected to deliver a revenue of $59.75 billion, rising 36.6% YoY. However, there could be some very good surprises. Now, the MasterCard report findings suggest that U.S retail sales are having their best times since 2011. The high consumer confidence and a solid job market have led to the best rise in sales in the holiday period in recent times. The retails sales have risen 4.9% from the beginning of November to Christmas Eve this year while it was just a 3.7% gain in the same duration in 2016. The sales exclude automobiles.
What's more? The report suggests that e-Commerce was the major driver behind the above gains, rising by 18.1%. Sarah Quinlan, Senior Vice President, marketing insights MasterCard went on to say that December 23 sales were only second to Black Friday sales in terms of spending. A recent report which quotes IHS Markit research stated that online sales generally account only about 10% of U.S spending but this year it could be as high as one-fifth of holiday sales. This report also hints that majority of the online sales would go to Amazon again.
Alexa could have a much bigger role to boost Amazon revenues this year.
Courtesy of Amazon's Echo line of devices, the company has got the market-leading position in smart speakers and the Artificial Intelligence (AI) based voice assistants. Many analysts have already predicted Alexa to be a multi-billion opportunity for Amazon in the years to come. However, if one goes by the data from Invoca, then Alexa could be a big tailwind in 2018. Going by the latest trends in the voice space as seen in the infographic below, Alexa with the largest install base in terms of smart speakers could be the X factor which could boost Amazon revenues in a big way. Alexa could also give a lift to the already fast-growing advertising revenues which are expected to account for 7.6% of the non-Google and Facebook (NASDAQ:FB) US advertising revenues in 2018.
Amazon should be wary of counterfeit goods issue.
The sale of counterfeit goods on their its platform has been a cause of concern for all major e-tailers. Alibaba (NYSE:BABA) stock is one prime example which has been hit hard in the past on account of fake items being sold on its platform. Now, this could be a major headache for the e-Commerce giant unless it deals with the situation in an effective way. In a recent report last week, the counterfeit product sales issue has sprung up again. German shoemaker Birkenstock, which discontinued its relationship with Amazon in the U.S. has some harsh words for the online retailer. Birkenstock CEO Oliver Reichert speaking to a daily went on to say that "The truth is that Amazon makes money with these fakes. As far we’re concerned, Amazon is an accomplice." The comments from the more than two-centuries-old iconic shoemaker come only after few days it has announced not to have its products on Amazon Europe from next year. Though Amazon has a strong policy prohibiting the sale of fraudulent products, the recurrences of such situations could quickly escalate into a major concern for the company as seen in China's Alibaba's case in the past.
Going by the holiday trends, Amazon stock seems like a better buy among the major retailers. Amazon's Prime subscribers are also likely to have a big say in the company's performance going ahead in 2018. About half the U.S households have the Prime membership which gives them early access to discounts, free shipping, and exclusive deals. Though the earnings estimates for the current year don't inspire confidence with EPS estimates being reduced by more than half over the past one year. Wall Street is still extremely bullish on AMZN stock in 2018 with expectations of almost 100% growth in EPS from 2017. Amazon trades at 36 times forward free-cash-flow estimates, the metric which Jeff Bezos prefers to use instead of earnings. With free cash flow growth at 25% to 30% a year, and the strong growth opportunities ahead, it appears Amazon stock is likely to roll in 2018 as well.
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