A Buy on the Sell-Off

The big pullback in Amazon's shares represents a great opportunity for long-term investors

Apr 22, 2014 at 12:05PM

Amazon's (NASDAQ:AMZN) expansion into newer business lines and markets represents massive growth potential for the company. Amazon's sustained momentum in signing up Prime users and the launch of Fire TV will lead to robust media and content sales. The company's high margin third-party business will also aid in driving more upside in the company's revenues and earnings. 

Prime is slated for growth
Amazon Prime now has more than 20 million customers, and its recent price hike will lead to incremental revenues of more than $400 million annually. The company's CEO, Jeff Bezos, stated in his annual letter to shareholders that on a per customer basis, Prime subscribers are ordering more items from categories than ever before. 

And Amazon has hiked the selection of Prime eligible goods to more than 20 million items, which alone justifies the price increase to $99/year from $79. The company's Prime Instant Video offering has seen substantial progress in new members, usage metrics and cumulative number of streams. 

In addition, Amazon has increased its investments in Prime Video by developing more original content for its subscribers. Some of Amazon's pilot shows have received good reviews, and are now in their development stage, and should aid in keep Prime churn rate to a minimal amount. Amazon has also rolled out Prime Video recently in two major European markets, including the U.K. and Germany, and should see robust sign-ups going forward. 

Fire TV has huge potential
The company's recently unveiled Fire TV player is Amazon's foray right into the living room of its consumers and goes directly head-to-head with Google, Apple (NASDAQ:AAPL), and Roku. The Fire TV is a great way for Amazon to promote Prime, but also comes with competitor offerings including Netflix and Hulu.

In addition to being a video-streaming player like Roku, Fire TV will provide consumers to access Amazon's large collection of movies and TV shows a la carte from its gigantic ecosystem. Apple has been generating robust revenue growth from digital content sales, and this competitive offering from Amazon might hurt a la carte sales on iTunes. In the last quarter, Apple's revenue growth from iTunes, software, and services stood at 19% year over year, and more players in the market for digital content might be a headwind for the iPhone maker.

Also, Fire TV will be a great launching pad for Amazon's ambitions to be a player in the gaming market. Amazon recently launched a game called Sev Zero and intends to launch a much large collection of graphically innovative games for its tablets and Fire TV.

Future retail growth
Amazon's retail presence is getting stronger than ever. In March, Amazon's same-store-sales growth stood at 26.2%, well ahead of eBay (NASDAQ:EBAY), which saw same-store-sales growth of 17.8%, according to ChannelAdvisor. ebay is increasingly leaning toward the Amazon model, as its fixed price sales increased 21.5% year over year, and its auctions-based pricing business declined 10% year over year. 

Amazon's revenue growth is likely to stay ahead of eBay and other e-commerce competitors, as the company has plans to grow its grocery business, Amazon Fresh, in the future. Bezos stated that the $299/year Prime Fresh offering will not only include fresh grocery items but also a huge selection of household and electronic goods numbering more than 500,000. The company even struck a deal with USPS to deliver Amazon items on Sunday, a notable win for the company.

In 2013, the number of sellers utilizing Amazon's Fulfillment by Amazon (FBA) by 65% year over year, a big increase for such a large platform. This sizable increase in third party (3P) sellers should boost Amazon's margins in the future. 

And the company is adding more FBA products from sellers to its Prime offering. And this leads to more value delivered to the end consumers as well. Sellers on Amazon's FBA platform have stated that they have seen increased unit sales upon joining FBA, a win-win for all involved.

The bottom Line
Amazon remains supremely well-positioned for long-term growth. The company champions the retail triangle of price, selection, and convenience, and as a result Amazon will be able to take more market share from offline retail. The company's culture of innovation is leading to newer product categories that will drive incremental upside for its revenues and earnings profile. The sell-off is a great way for investors to long the stock of Amazon.

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Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends and Apple. The Motley Fool owns shares of and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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