Few e-commerce websites have the industry position and perception among customers like Amazon.com Inc. (AMZN, Financial) does. Competitors like eBay Inc. (EBAY, Financial) and Zulily Inc. (ZU, Financial) have been unable to hold the kind of sway that Amazon.com has managed to garner. Last month, the e-commerce company beat revenue earnings estimates of $22.3 billion to make $22.7 billion in revenue in the first quarter ended March 31, 2015. It reported a 15% increase in sales, a 74% increase in operating income and 47% increase in operating cash flow. Breaking up the earnings report to announce financial results of retail segment separately and cloud business separately, cleared up the profitability of both segments for investors.
Last week, analysts at Morgan Stanley revised Amazon.com’s target price up from $450 to $520, while maintaining an ‘Overweight’ rating and their Bullish view. The analysts claimed that the fiscal 2016 gross profit consensus outlook of 5% is too low. They believe that the $57 million net loss suffered in the first quarter so far is easily surmountable in the coming months of the year.
Diversify to stay ahead
The e-commerce retailer, on its part, has reportedly launched an online marketplace for artisanal, handmade goods called, Handmade. According to reports by The Wall Street Journal, Amazon.com sent sellers at Etsy Inc. (ETSY, Financial) a sneak peek and invites to sell on their new marketplace. The sneak peek included updates, a preview and a questionnaire. "Introducing Handmade, a new shopping experience at Amazon. We're offering artisans like you a first peek at Handmade, a new marketplace for handcrafted goods," the invitation said.
Etsy Inc. recently went public this past April and since then has suffered a 42% drop in stock value. Valued at $2 billion, it is reportedly one of the first picks of traders to be included on Amazon.com’s new Handmade marketplace. Etsy boasts nearly 1.4 million sellers of handmade crafts, products and cosmetics.
Diversifying to handmade goods is a strong push for boosting sales for Amazon.com. Its dedicated customer base, speedy delivery and high fee structure should, ideally, contribute to the success of a dedicated e-commerce platform for ‘handicrafts’ and to drive customer engagement with it.
Neither Amazon.com nor Etsy Inc. has ventured any comment on the development.
Market logic
Amazon.com’s common stock is currently trading at a 12 month forward price earnings multiple of 98.5x. The shares have risen 37% this year, with a 52 week high of $452.65 and Low of $284. Trading on Friday saw shares drop by 0.93% to close at $427.63, while after-hours trading saw another slight drop of 0.09% to $427.25. Fourteen of 29 analysts polled, by Zacks Investment Research, give the stock a Strong Buy rating, while 12 give it a Hold rating.
Thirty of forty eight analysts polled by Bloomberg rate Amazon.com stock as Buy, while 17 give it a Hold rating. The 12 month consensus price target of the stock is $466.91.
Further, analysts, polled by Zacks Investment Research, expect the earnings of the company to grow at an average annual rate of 33.46% over the next five years. In 2015, earnings are expected to grow by 163.97% over that of the last year, while next year earnings are expected to grow by a massive 594.64% over this year’s forecast.
