Amazon Shrugs

February 6, 2018 Newsletter, Stocks No Comments

The Amazon Death Star is the Atlas of this meteoric 9 year old stock market rally. Stock markets have fallen over 10% in about a week, bewildering investors, while Amazon shrugs. Without serious interruptions, Amazon and other tech titans have increasingly dominated their markets. In spite of large competitors such as Walmart (JD.com), Alibaba, Ebay, Netflix and many others, Amazon (AMZN) seems impervious as it invades new markets. Since the 2016 elections, Amazon has almost doubled and virtually ignored the scary US and global market correction to date. Should the general market drop enter a new leg lower on more wage inflation – interest rate fears, then a normal pullback risks a return to its recent 4th quarter trading range from the mid 900’s to 1200. 

Amazon sales are growing over 30% a year in the US and over 20% abroad. Their value is tied for the 3rd in the US as it gains ground on other best of breed behemoths, Alphabet and Apple. Some day conversion to the cloud will slow and there will be a paucity of new markets for Amazon to dominate, but at this point they are far from running out of opportunities to crush the competition. While a price under 1200 or 1000 would be a short term panic for Amazon investors should it manifest soon, the technical consequence of such a correction longer term will be just a normal blip after a parabolic exhaustion phase. As long as this economy avoids recession, Amazon should remain an attractive investment on pullbacks.

Another niche Amazon competitor that has actually grown faster in recent years, is Netflix (NFLX). Like Amazon, Netflix has achieved a level of inelastic demand that allows them to raise prices for its streaming services which has become a utility that consumers must have. While Disney, Hulu and others are making valiant efforts to compete, why subscribe to multiple services when one has it all? Yet over half of Millennials pay for multiple streaming portals. Hulu has 17 Million members and Amazon Prime has 60 million compared to Netflix’s 118 Million. It’s Netflix’s content more than price that will funnel subscribers to one provider and continue cutting their Cable cords. Additional faux threats from HBO, Starz, Showtime and CBS seem certain to fade away or be acquired leaving Disney, Amazon and Netflix as the only major players long term in the streaming Movie – TV series entertainment world. However, Netflix dominates, with $8 Billion content spend for 2018, as it increasingly relies upon original shows. Yet Amazon Prime and the giant upstart – Disney, will provide considerable periodic risk for Netflix with their bottomless pockets locking up exclusive studio franchise content deals.

If there was one horse to bet on this past year and since the Bull market in stocks began in 2009, Amazon would have to be a leading contender. Netflix, Adobe, Alphabet (Google), Slaesforce, Facebook and Apple have also been consistent mega winners dominating their competition as best of breed where investors can still depend upon healthy growth in 2018 and beyond. With the current flash crash market correction paralyzing investors, Amazon has merely shrugged.

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