The Future of Amazon: What’s next?

Amazon.com Inc. is an online retailer that offers a wide range of products. The Company’s products include books, music, videotapes, computers, electronics and numerous other products. It is also offering personalized shopping services, Web-based credit card payment and direct shipping to customers. It has a Market Cap of $149,981.68M dollars and 463,01M shares outstanding.

The company managed to recover very well during the crisis period. Since the 19th of November 2008 until the 2nd of January 2014 the share price has managed to gain 1035.5%. It rallied from $35 all the way to $408 without having important corrections on the way.

From the beginning of 2014 the shares were traded at an average price of $330, but it actually managed to lose 30%, hitting a low at $284. From the technical analysis perspective a Descending Triangle was drawn during this entire year. A break below the low of this year (considered to be the base of the triangle) will trigger a bigger drop. The price pattern’s targets are sitting at $220 (50% of the full target) and $161 the full potential of the fall in case of triggering.

As usual, technical analysis is actually only the interpretation of the market on the fundamentals. The price has been moving sideways due to investors not having any strong signal on the company’s future activities and direction, especially for a period in which the numbers are showing a decrease in the profit.

During the first three quarters of this year Amazon Inc. has had smaller net income announcements than the last quarter of 2013.  As it can be seen from the Amazon Income Statement chart the net income of the company for this year (quarterly measured) has been around 20 million USD, but the profit margin has steeply dropped.

From a revenue of $25,587M, a net income of $239M and a profit margin of +0.93% in the last quarter of 2013 it got to a revenue of $20.567M, a net income of -$437M and a profit margin of  -2.12%.

Knowing all of these, Amazon Inc. is doing its best to recover and keep it on the right path. It looks like the “universe” is aligning itself to help the company. Amazon will get $5 million in tax credits from New York State to bring 500 jobs to a property across the street from the Empire State Building.

The credits come from a program that provides incentives to companies creating jobs in New York. As of September 30^th, the program had committed about $480 million credits to businesses employing 106,779 New Yorkers. The retailer has been looking for a New York base for about two years, so this came just right for them.

That is not all, yesterday at 20:00 GMT it was announced that Amazon Warehouse workers lost at the Top Court on extra pay. This is a good news for Amazon since they will not have to pay more to their workers.

Workers don’t have a federal right to be paid for time spent in post-shift security searches, the US Supreme Court ruled in a decision that will help Amazon.com Inc. fend off lawsuits seeking more than $100 million. This law will also help companies like Apple Inc., CVS Health Corp. and others.

Amazon Inc. is also seeking to avoid shipping delays that marred last year’s holiday season. The company is taking more control of its delivery system by opening “sorting centers” around the country. This is a very important step for what is about to happen in the next several days. Usually the net income is higher for Amazon during winter holidays. Everyone will want to buy gifts for their loved ones and Amazon.com is one of the most trustful and used for this purpose.

Taking care of their image and their clients by creating these “sorting centers” they hope to increase sales and bring in more revenues.

Amazon deepened its foray into video games by purchasing GoodGame, a company that owns teams of video-games players and hosts live gaming tournaments. The deal follows the announcement in August that it had agreed to pay $970 million to buy Twitch Interactive Inc., an online forum that lets users discuss gaming and watch other while they play.

These are some long term strategic investments. The gaming industry is still growing and Amazon would like to take part in this process.

Let’s get back to what happened to the Amazon.com Inc. share price. It has been traded at a lower price comparing with the end of 2013. But taking into consideration everything we have told you in this article, we think that a rally is on the way. A dip back to 284 key level support would be a good opportunity to buy.

Let’s discuss another good reason why a break and a big correction at this point is less probable. Comparing the chart of Amazon Inc. with NASDAQ100, the index is a compound of 100 important tech companies from the United States, you will see that at this point there is a big divergence between them.

NASDAQ100 continued to rally and hit new highs, as well as other important indices like Dow Jones Industrial Average or S&P500, while Amazon has been trading in a range (sideways). The American economy is recovering. Unemployment Rate dropped to 5.8 and it will continue to drop, the salaries are increasing so people have money to spend.

It seems reasonable for us to believe that this sideways move will be ending soon. Holidays are coming and sales will most probably rise. A good stop can be set aThe Future of Amazon: What’s nextt 280, or a bit lower, while a profit take can go above 400. This can be set as a medium term investment strategy in Amazon, but don’t take it as a recommendation, but as a personal opinion of our research team.