Amazon.com Inc. (AMZN, Financial) had a great run in 2017 as the stock appreciated almost 56%. Moreover, the stock is off to a spectacular start heading into 2018 as it up nearly 30% year to date and is currently trading at an all-time high.
Amazon released its earnings results on Feb. 1, in which it managed to beat bottom-line as well as top-line estimates. The e-commerce giant’s revenue continues to grow at a rapid pace. In the prior quarter, the company reported record revenue of $60.50 billion, representing a surge of 38% year over year.
U.S smart speaker market share
Source: Voicebot
Over the past 12 months, Amazon has been aggressively focusing on its Alexa software as the adoption of the smart home speaker has stunned company executives with its growth. In 2017, Amazon Echo seized almost 70% market share in the U.S.
Source: Voicebot
In addition, the e-commerce giant will continue to benefit from the smart home speaker market as it is projected to reach $4.8 billion by 2022, representing a compound annual growth rate (CAGR) of 30.4%.
In addition, the cloud continues to drive growth in the data center industry, which is great news for Amazon as it is a global leader in cloud computing. The growth of Amazon Web Services (AWS) was one of the major stories in the data center industry last year. On the back of its ability to lower costs, the e-commerce giant has started manufacturing its own chips in an effort to maintain its lead in the space.
Source: Statista
India also presents a massive growth opportunity for Amazon as it is one of the fastest-growing e-commerce markets around the globe. Retail e-commerce sales in India are projected to reach $52.3 billion, up from $20.05 billion in 2017. Currently, Flipkart, India’s leading e-commerce platform, holds majority market share in India, but Amazon has expanded its footprint at a rapid rate.
Recently, Walmart Inc. (WMT, Financial) announced it is looking into purchasing a nearly 40% stake in Flipkart to compete directly against Amazon in India. While it is true this deal would undoubtedly provide a boost to Flipkart, it will still need to find a way to appeal to loyal Amazon Prime subscribers.
Source: App Annie
According to the latest report from App Annie, Amazon was considerably ahead of Flipkart in the number of app downloads as well as desktop browser visits. The main reason for this lead was rich user experience as well as a comparatively higher number of products offered by Amazon.
The number of Amazon Prime memberships in India grew almost five times last year. The e-commerce giant recently publicized that more Prime members joined in India compared to any other country in the first year. The company currently has 11 million products available under its Prime program, but it is planning to increase that figure by a significant amount in the upcoming quarters.
Summing up
Amazon has delivered tremendous returns over the past five years and should continue doing so. In addition, Wolfe Research recently upgraded its rating on Amazon to outperform.
The e-commerce giant holds a leading position in the data center and smart home speaker markets and is working to strengthen its position in other industries as well. As a result, the company’s efforts will bear fruit in the future.
Regardless, I do not believe it is the right time to buy the stock as it is extremely expensive and is trading at an all-time high. The stock currently trades with a high trailing 12-month price-earnings (P/E) ratio of 247. Investors should wait for a dip before buying the stock.
Disclosure: No positions in the stocks mentioned in this article.
