When you think of the idea of a virtual mall, I'll bet a lot of you think Amazon.com (NASDAQ:AMZN). I know I do. That's just part of the reason why I'm nominating it as the best e-commerce stock for 2007.
Amazon.com has long proven itself to be not only a dot-com survivor but also a real innovator. Many companies have come and gone from that era -- remember Kozmo.com? -- but Amazon is an idea that was built to last, one of the most popular online retailers that continues to show impressive growth and innovation.
Everything!
Online shoppers turn to Amazon to get good deals on both the popular and the obscure. It's not just that you can get an Apple iPod or the hottest new release from Warner Music Group, but you can find much more obscure items as well. I've long been a big believer in the so-called "long tail" of commerce that Amazon has come to help represent, since many of my tastes are a bit more obscure, from lesser-known musical artists to out-of-print books, and Amazon has generally carried what I was looking for. Chances are, if you want it, even if it's some niche product, you can find it at Amazon.com.
Over the years, many thought it was odd when Amazon branched out from books, music, and movies into seemingly strange fields like electronics, home and garden supplies, jewelry, and even groceries (and that's to name just a few). But Amazon proved the critics wrong when customers bought items online that many pundits thought would never sell sight unseen.
Welcoming third-party merchants into the fold has helped Amazon keep its inventories low while offering more merchandise. And of course, while low-cost shipping may be why Wall Street has often been less than bullish on Amazon (low margins have often been an area of concern), the company has been able to make up for its low prices and subsidized shipping with high sales volumes. Amazon's compound annual growth rate in sales is 26.6% over the last five years, in fact -- a pretty impressive showing, especially since the company is large and mature at this point.
That high sales volume -- and large base of satisfied customers -- helps put Amazon among the creme de la creme of Internet retailers. Customer reviews have been a large part of Amazon's retailing strength; despite the fact that you can touch and feel items in bricks-and-mortar stores, what kind of luck do you think you'd have asking nearby shoppers in a physical store if they have any experience with the products? Along those same lines, Amazon.com also provides customer ratings and product wikis -- more ways it helps online shoppers get an idea of what to expect from the merchandise it sells. And of course, like many other online companies that have come to recognize the strengths of today's Internet, Amazon's recommendations are often right on the money, too.
Your digital mall
Amazon has done many interesting things to differentiate the experience at its service, such as offering multimedia experiences on its site, including a talk show. The way I see it, dreaming up value-added features is a smart strategy to make the Amazon.com site ever closer to what a virtual mall should be -- a place where you not only buy items, but you might hang out a little bit, too, and all from the comfort of your own home.
Since the future seems pretty certain to include digital media, the rollout of Amazon's Unbox is also heartening. Sure, many people have found the service to be underwhelming thus far. However, the infrastructure is falling into place, and as Amazon offers more digital content in the future, it stands to reason that it will be able to bolster its profit margins, since digital content is so cheap to distribute.
True, Amazon.com competes with other well-known online retailers like eBay (NASDAQ:EBAY) and Overstock.com (NASDAQ:OSTK), and it also takes on traditional retailers that increasingly offer their merchandise directly to shoppers online, like Best Buy (NYSE:BBY) and Borders Group (NYSE:BGP). However, Amazon's excelled for this long, and I'd say its history of innovation will find it continuing to differentiate itself from many of the other players on the Internet's main drag.
While Amazon's expected to report lower net income for 2006 (on a 24% increase in revenues), it's certainly not some old, doddering, slow-growth company yet. After all, Wall Street expects it to continue to post double-digit percentage sales increases in the mid- to high teens for the following years, and earnings increases of 67% and 38.5% in 2007 and 2008, respectively. Nope, Amazon's not done yet.
The final frontier
Snicker all you want about the fact that Amazon founder and CEO Jeff Bezos has plans for space travel. (His Blue Origin space venture completed a successful takeoff -- and vertical landing -- last November.) And? It is the final frontier, after all. It's arguable that Bezos is the type of innovator who has long been able to see where things are going. And that bodes well for Amazon.
I may think Amazon.com's the best e-commerce stock for 2007, but what do you think? Just stroll on over to our community-intelligence database, Motley Fool CAPS, and rate Amazon.com an "outperform" if you agree; if you think Amazon's going to crash and burn, rate it "underperform." Based on that input, we'll declare the community's idea of the best e-commerce stock for 2007 next week.
Links:
See all our Foolish candidates for 2007's best e-commerce stock, then add your own ratings in Motley Fool CAPS.
Amazon.com, eBay, and Best Buy are Motley Fool Stock Advisor picks. Overstock.com is a former Rule Breakers choice. To find out what other companies David and Tom Gardner have recommended, click here for a 30-day free trial of Stock Advisor.
Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.
