Why This E-Commerce Stock Is A Conviction Buy?

Anindya is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Pacific Crest’s Chad Bartley recently raised his rating on shares of Amazon.com (NASDAQ: AMZN) to Outperform from Sector Perform, with a $346 price target, arguing that the company’s “lead is growing” in retail commerce and that “market-share gains should sustain rapid growth.”

As online retail consumption picks up pace, Amazon’s size and scale, low prices, service quality, and fulfillment and distribution capabilities have led the company to increasing e-commerce share. Let’s now focus on Amazon’s main three growth drivers:

1. Online Retail Boom Accelerating Worldwide

Retail is shifting online at an accelerating pace. In 2012, 9.4% of all U.S. retailers purchased online, which was up 120 basis points year-over-year. This is up from 8.2% of U.S. retail and an increase of 60 basis points in 2011. Also, on a global basis, retail is the fastest-growing online category, increasing 8% year-over-year compared to other categories. This is positive for Amazon, with roughly half of sales coming from international markets.

2. Amazon’s Dominance in Mobile Commerce

Amazon’s dominance in mobile space has become a competitive advantage for the company with e-commerce increasingly becoming mobile commerce. According to an eTail survey, 87% of retailers view mobile as the biggest growth area. According to ClickIQ, 48% of retail purchases are influenced by mobile, and 29% of mobile shoppers research in-store and buy online.

U.S. mobile commerce grew over 70% year-over-year in 2012, and accounted for roughly 10% of total e-commerce sales. As of September, 2012 Amazon has 62 million unique mobile visitors and as of July, 2012 Amazon’s mobile reach was 47%. This is way higher than competitors. In addition, Amazon’s mobile reach is consistent with that on the desktop of 51%. This implies that the company is just as strong in mobile e-commerce as it is in desktop e-commerce.

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3. Amazon: A Technology Powerhouse

Over the past few years Amazon has developed extensive technology to power e-commerce. Then, Amazon leveraged and licensed that scalable technology to enable other companies becoming e-commerce players. Amazon’s e-commerce technology also helped the company in growing its own e-commerce share much faster.

One of the most viable sources of future revenue generation for Amazon will be its AWS (Amazon Web Services) division. Amazon has become one of the most significant players in cloud computing. AWS is the internet infrastructure that is the backbone of cloud-architecture based software and services. As mobile continues to expand, and internet access via mobile devices continues to explode, Amazon will benefit. 

But isn't Amazon Ridiculously Expensive?

<img src="http://media.ycharts.com/charts/a3c64f61de54addb5daa008d577b3e7f.png" />

Data by YCharts

By a lot of traditional metrics, the company is expensive. It trades for closer to 4,000 times earnings, and over 16 times book value. But these numbers are skewed by the fact that the company has invested heavily in its future. 

<img src="http://media.ycharts.com/charts/72f2ee31f00ba3f88eeabb41fb4befd4.png" />

Data by YCharts

Amazon’s revenue per share has been growing by an amazing 231.3% compared to eBay’s (NASDAQ: EBAY) 80.57%, Best Buy’s (NYSE: BBY) 52.56%, Wal-Mart’s (NYSE: WMT) 42.71% and Target’s (NYSE: TGT) 40.81%. Over the years, Amazon has worked to expand its collection of fulfillment centers throughout the U.S. and the world, for allowing ever-faster delivery. Amazon’s fulfillment and distribution capabilities have led the company record this huge revenue growth, which its peers can’t even imagine.


With online retail generating momentum, Amazon’s revenue growth will continue to impress investors. The street estimates that on an average Amazon’s revenue for this year will be $79.4 billion. Despite the stock has been trading at an astronomical PE multiple, it remains one of my highest conviction stocks in the market.

Anindya7 has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and eBay. The Motley Fool owns shares of Amazon.com and eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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