There's no denying 2015 has been a good year for Amazon ($AMZN)—even when you factor in the allegations by the NY Times of a toxic work environment at the company. (People didn't seem to make as much of a fuss about Amazon's non-competes for hourly warehouse workers, even seasonal ones, that were later removed.)
In spite of any negative press they've received, Amazon as a company has simply been on fire: They've been consistently beating analyst expectations from quarter to quarter; Amazon Web Services still dominates Google's and Microsoft's cloud services units; and its e-commerce operation continues to outpace Walmart and Target in online sales growth.
Investors have responded well to Amazon's successes this year, with its stock price having increased by 116 percent to $667 a share from the beginning of this year, so there's a big question of whether it can continue that momentum into 2016. With that in mind, here are some of the things we'll be watching for Amazon in 2016—including on the Amazon Echo and Fire tablet, and the growth of AWS.
Can Amazon maintain its earnings streak? Amazon has continuously beat analyst expectations this year in its earning reports, having most recently reported earnings of 17 cents per share for Q3, exceeding the analyst consensus estimate of a net loss of 13 cents per share. Its Q3 revenue was $25.4 billion, some $450 million more than what analysts were expecting.
A big question for 2016 is whether Amazon can maintain its earnings momentum. For instance, while its e-tail businesses and Amazon Web Services businesses are expected to stay strong, the company's spending on developing infrastructure could drag it down, as a report from Investor's Business Daily suggests.
Prime continues to expand: Amazon's $99-a-month subscription service grew in a multitude of ways this year, including the addition of more locations for its Prime Now service, which offers free two-hour and paid one-hour delivery and now serves at 17 locations around the world. Having recently won its first Primetime Emmy Awards in September, Amazon also continues to up its original TV programming game for Prime TV with even more shows.
As noted in Amazon's most recent earnings call, Amazon is investing heavily into Prime for both the U.S. and international markets. Amazon's international market, it was noted, has largely been drive by Prime adoption—and obviously remains to be a good source of revenue in the U.S. as well. Cowen analyst John Blackledge recently said in a research note that Prime is a "key component" of Amazon's strategy to steer shoppers away from the store and onto its platform.
More hardware innovation: Amazon's Echo smart speaker—which is essentially Siri for your living room—was the top selling $100-plus item during Amazon's Black Friday sales, but that wasn't the only Amazon product that was a winner: the 7-inch Fire tablet and Fire TV streaming stick were the best-selling devices during Black Friday as well. While Amazon's Fire Phone was considered a flop earlier this year, it's clear that the company still has a strong hardware game.
And it's definitely not done bringing more products into our lives that will ultimately help us buy more stuff from Amazon: Bloomberg reported earlier this month that Amazon received two patents for augmented reality technology, one that would basically project a virtual setting onto a room from a single light source and another that would use "object tracking in a 3-dimensional environment" to let people control devices for hand gestures.
Will Prime Air finally take off? Next year could be the year that Amazon's drone delivery service could take off, but it still remains to be a game of wait-and-see. The Federal Aviation Administration said over the summer that final rules for commercial drone use could be in place before June 17, 2016, and an Amazon senior executive said it would be ready to start sending its delivery drones into the air as soon as those rules are in place.
Regulations proposed in February would require drones to only be flown during daylight hours and within the visual line of sight of operators—which would likely be too restrictive for Amazon's Prime Air plans. But, as Reuters reported, FAA officials have been in discussions with Amazon and other stakeholders about accommodations for more sophisticated drone systems.
More robots on the way: While Google is still figuring out what to do with its acquisition of Waltham, Mass.-based robotics company Boston Dynamics, Amazon has already been making good use of the warehouse robots that came out of its 2012 acquisition of North Reading, Mass.-based Kiva Systems. As the Boston Business Journal reported, the number of Kiva robots in Amazon fulfillment centers have doubled to 30,000 from the end of last year. The robots are now at a total of 13 warehouses, compared to 10 from last year, so it's clear that the number is only going to increase from here.
Can AWS continue to fend off Microsoft and Google? Between Amazon, Microsoft and Google, Amazon has a clear lead in cloud computing services with its Amazon Web Services. AWS has been Amazon's fastest growing unit, with Q3 revenue reported at $2.08 billion, about $800 million above what analysts were expecting.
Blackledge, the Cowen analyst, said in his research note that Amazon will continue to be a compelling investment opportunity throughout next year, and that is in part because of his expectation that AWS will continue to flourish. "For AWS, demand remains strong, while pricing appears to be firming," he said.
Amazon is the kind of e-commerce—what now? A number of analysts noted in Amazon's Q3 earnings this year that "Amazon's retail operations had reached a critical scale' or 'inflection point,'" meaning that the company's "enormous investments in infrastructure and logistics have begun to pay off," NY Times Reporter Farhad Manjoo wrote last month. Simply enough, Amazon is far ahead of Walmart and Target in terms of sales, and its dominance is giving VCs cold feet for making big investments into new e-commerce ventures.
Blackledge, the Cowen analyst, wrote that Amazon continues to take market share away from traditional retail, and that its large verticals for apparel and consumables are seeing accelerated growth. He said these verticals, such as Amazon Pantry, will be important heading into next year as Walmart and Target continue to invest into their e-commerce platforms. How Amazon continues to innovate in this space and continue its dominance will obviously be a major factor next year.
Photo by Steve Jurvetson, CC BY 2.0.
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