Amazon Moves Higher on Positive Catalysts
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Online retail giant Amazon.com (NASDAQ: AMZN) is currently trading around $208, and it looks poised to continue increasing after announcing its new Amazon Instant application for Microsoft's (MSFT) Xbox 360. Amazon is also having continued success in the e-reader market, receiving favorable tax deals, and getting some good press. All of this works to make Amazon look like a great buy right now.
At first glance, it may not seem like an app for a video game console is that big of a deal for Amazon. After all, it makes the bulk of its money via online shopping and its extremely popular e-reader Kindle. This could represent a significant step on the part of the company, however, to cut into the streaming video success of Netflix (NASDAQ: NFLX). Netflix has upgraded its iOS app, and this is certainly good news for Netflix stockholders. I do not think this is as large of an improvement as the Xbox 360 app from Amazon though.
Anthony Bay, Amazon’s vice president of video, touted Amazon’s decision in a press release. He claimed, “Amazon Instant Video on the Xbox 360 console is among one of the most requested video features from our customers, so we are excited to offer yet another way for customers to enjoy Amazon Instant Video.” He added, “With Amazon Instant Video on Xbox 360, Xbox LIVE Gold members can start enjoying new release movies, current TV episodes and Prime Instant Video right away."
Strikingly, almost 25 percent of Netflix traffic last year came from Xbox 360 users. This shows the importance of this app, and if Amazon is able to translate its video content into similar results, it would be a significant boon for the already-successful company. Amazon has 17,000 videos in its library at the moment. It has recently inked a contract with preeminent entertainment content provider Viacom (VIA), furthermore, so its number of videos should continue to increase. In order to use Amazon Instant, you must be a subscriber to Amazon Prime at $79 per year. Netflix charges users of its streaming service $7.99 per month, which amounts to roughly $96 per year. When you consider that being a member of Amazon Prime provides more benefits than just the video content (most notably, free two-day shipping), this gives them an advantage over Netflix. It is really going to depend on how much content Amazon is able to get in relation to Netflix, but I really think this is a great move for the company.
The success of Amazon's Kindle e-reader makes me even more confident that this is a good company to invest in. The New York Times (NYT) just did a significant technology feature on e-readers, and the future certainly looks bright. Amazon was the pioneer in the market, and the Kindle is still the archetype for a successful e-reader, although Barnes and Noble's (NYSE: BKS) Nook has cut into its market share. While lagging significantly behind Amazon and Barnes and Noble's e-readers, Sony (NYSE: SNE) also has its Sony Reader, which is a more lightweight device. Sony has continued its general decline over the last ten years though, and it does not look like it will challenge the e-reader big-shots Amazon and Barnes and Noble. Another competitor in the e-reader market is Samsung, with its Papyrus e-reader, which features a touch screen. I would be extremely surprised if Kindle did not remain the top selling e-reader in the foreseeable future, and as long as the e-reader market continues to rise, this is fantastic news for Amazon.
The fact that the company is seeking to expand and open facilities at a time when economic growth is tepid is also a great sign. In New Jersey, Amazon is planning to begin collecting sales tax next summer, but it will also build two new distribution centers in the state. In California, it is seeking a similar deal, but nothing has been made official yet. There is an agreement in place with Governor Jerry Brown, however, for Amazon to create 10,000 jobs by 2015. If a tax deal is also reached with California, it would be significant for the company, especially given the enormous strength of California's economy.
Finally, Amazon is a good buy right now as a result of the favorable press it has recently received. With the announcement of its Xbox 360 application and the tax deals, consumer confidence in the company should be quite high right now. In addition, Sennheiser—a very well-respected tech company that specializes in microphones, headphones and other audio equipment—recently named Amazon its 2011 "Dealer of the Year." That may not seem like a huge deal, but it is great press. Anyone familiar with audio tech products knows Sennheiser, and getting that big of an endorsement from them is a great thing for Amazon.
Sennheiser Vice President of Sales and Marketing Bill Whearty had glowing praise for Amazon. He said, "We are pleased to recognize Amazon as Dealer of the Year in the online retailer category. Amazon continues to deliver very impressive year over year sales growth."
The importance of good press like this from respected tech companies should not be overlooked, especially with regard to the price of Amazon stock. Having confidence in the future growth of a company is a huge part of deciding to invest, and if people continue to hear similar things about Amazon, I see no reason to doubt the strong future for Amazon stock.
Even though Amazon has had a pretty meteoric rise the past couple years, I still think it is a great buy and should only continue to increase. The announcement of its Xbox 360 app—potentially cutting into Netflix's profits—adds to the already-positive news about its tax deals, growth, and the press from Sennheiser. All of these suggest to me that Amazon is a great company to own right now.
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