Amazon.com (AMZN -2.56%) was recently profiled as Motley Fool co-founder David Gardner's first 100-bagger. Many have been bearish on the company, particularly due to the fact that while its top line continues to impress, its bottom line has been, for lack of a better word, lacking. That being said, a fixation on the bottom line has proven to be disastrous to Amazon bears as the stock continues to rocket up to new all-time highs. With shares up 43% year to date, is Amazon set to continue to outperform?
Amazon's core business continues to thrive
People love shopping on Amazon. Many bears argue that the primary reason consumers choose to purchase products from Amazon rather than other online retailers or brick-and-mortar shops is that Amazon sports incredibly aggressive prices. That's certainly a factor, but it's difficult to ignore that Amazon has built itself a truly world-class moat. Amazon's selection is nearly unparalleled, its customer service is second to none, and the sheer ease with which customers can purchase products and have the merchandise delivered promptly is a major convenience.
The argument that the bulls make is that even if Amazon were to eventually raise its prices, it would likely retain its customer base by virtue of the fact that Amazon's shopping "experience" is simply better than what any other online retailer can provide. Amazon is unlikely to attempt such a price hike in the foreseeable future -- investors are certainly happy with the top-line story. But the time may eventually come.
However, Amazon is more than its core online retail business.
Amazon widens its moat with Kindle devices
In addition to being the world's most popular online retailer, Amazon has become quite the powerhouse in mobile devices. For example, the firm's latest Kindle Fire HDX 7-inch and 8.9-inch models are both incredibly high-end, high-quality devices available at incredibly low prices. Amazon is selling a 7-inch tablet with a top-of-the-line Qualcomm (QCOM -2.36%) Snapdragon 800 -- Qualcomm has really hit the jackpot with this win -- as well as 2GB of RAM, and a gorgeous 1920x1200 display for just $229.
An 8.9-inch version with similar internals and a screen resolution of 2560x1600 starts at $379. For reference, Apple's (AAPL -1.22%) latest and greatest 9.7-inch iPad Air starts at $499. So, in addition to making life exceedingly difficult for its online retail competitors, Amazon is out to steal Apple's business. Ambitious!
Interestingly enough, Amazon isn't out to make any money on these tablets -- it's very likely that they are sold at cost. But what they do, by virtue of the low price and a heavily customized Android 4.2.2 OS, is build an Amazon-specific ecosystem. Not only does this build up Amazon's brand awareness, but it also encourages people who buy these tablets to shop at Amazon for all of their needs, both digital and physical.
Speaking of digital goods...
In addition to being a one-stop shop for online retail, Amazon is a digital-content-providing powerhouse. Want to buy the latest episode of your favorite show? Odds are, Amazon has it. Want to buy that latest PC game? Amazon will either sell you a hard copy, or it will be happy to sell you a digital copy. Want to easily purchase music and have more control over the actual files? Amazon's cloud player offers a very compelling alternative to Apple's iTunes store. Amazon's reach is quite remarkable.
Foolish bottom line
It's easy to look at Amazon's bottom line and to dismiss it as an over-hyped "bubble," but the reality is that Amazon is busy building one of the most impenetrable moats that any technology company has today. There's plenty more to the story. For example, Amazon Web Services alone could be covered by several articles. However, the bottom line is that Amazon's top-line story continues to be impressive, and its reach in just about everything involving digital content is right up there with Apple's.
Amazon is one of the best secular growth stories on the market today, and despite an incredibly "rich" valuation, there's very little sign that the growth engine will come to a halt anytime soon. As investors, isn't that what matters?
