Amazon.com, Inc. (NASDAQ:AMZN) was a relative decline during Tuesday’s trading session declining by 1% on the back of high volumes, which were 0.9 times the daily average turnover. Amazon has been forming higher tops and higher bottoms on the charts and has outperformed the broader markets since the beginning of the year but is now showing signs of fatigue. The stock currently trades above all important moving averages.The index measuring relative strength continues to slide lower and is a cause for concern for traders. Momentum indicators clearly suggest that bears have the upper hand at the moment, which is a negative.
- Quarterly Results are better than what most of the analysts forecasted,
- Continue to make solid investment in digital devices, content and Amazon Web Services,
- Investors need to deal with certain risks before making any final call.
With Microsoft’s announcement to continue investing heavily in making Azure the leading cloud player in the market, talks regarding Amazon.com, Inc. (NASDAQ:AMZN)’s attempts in the same direction have increased. There’s no doubt that AWS (Amazon Web Services) holds the leading position in cloud segment as of now, but other players like Google, Oracle and Microsoft are on their way to make it large.
Although Amazon has found it pretty hard over the past few quarters to continue achieving profitable state, here are a few strong reasons that suggest why one should buy it with full confidence.
Financial Results Beat All The Forecasts
Amides of all such discussions Amazon reported the financial results for the recently concluded 3Q2015. There were many analysts who suggested that Amazon would fail to attain a profitable position this time, but nothing like that happened. Company’s operating cash flow for the quarter was $9.8 billion, up 72% on YOY basis.
Its net sales for the quarter was recorded as $25.4 billion as compared to last year’s $20.6 billion. Amazon’s financial performance in 3Q2014 was not great as it posted a net loss of $437 million, but it recovered pretty well after that and posted net income of $79 million in 3Q2015. Hardly any analyst had forecasted these numbers, which is evidence in itself of how efficiently Amazon has transformed its financials. Its balance-sheet comprises of cash and short-term investments worth $14.43 billion, which signify its cash-rich position quite clearly.
Continuous Growth In E-Commerce Space
At first, when Amazon started its operations, it was all about books. However, the growing consumer demand and favorable market response prompted it to include other items as well. Today it stands among the largest e-commerce platforms in the world and known for excellent service, good quality products, and on-time delivery. It is expected to grow in the coming months as well.
In addition to a continuous growth approach, Amazon is working hard to convert itself into an e-commerce platform where it can buy goods from manufacturers and sell them to consumers at lower than the market prices, eliminating the role of middlemen. It has started making attempts in this direction partially and look forward to adapting to it in different markets aggressively.
Strong Financial Performance of Amazon Web Services
If taken into consideration the last twelve months, one can notice that the revenues of Amazon Web Services- Amazon’s cloud business, have surpassed $5 billion milestone. It’s not even 1% of what future beholds.
Risks That Might Trouble Investors
Although Amazon looks all set to take its operational and financial performance to all new heights on the back of world-class services and products, there are some risks that might stop investors to invest in it. First of such risks is company’s recent expansion initiatives that have led to an increased operational cost.
The currency risk is another issue that has been troubling Amazon for the past few months. Many of the countries where it operates have faced financial turbulence lately, which has affected company’s business.
Amazon’s software and cloud services are undoubtedly very good, but its hardware (Kindle) is far from the best. Although they are doing moderately well in the market, they not as effective as the products offered by Apple, Samsung and others.
Amazon has seen a difficult phase of late, but it has recovered pretty well. Investment in cloud services is the strongest point whereas lack hardware efficacy is the biggest challenge. However, the management is trying its best to eliminate these hindrances in the near future. Investors can have faith in the future of Amazon; it’s safe and sound.