Amazon.com, Inc. (AMZN): Newer Highs Await?

Increased Tablet Sales Paves the Way for Incremental Content Sales

Amazon’s tablet device, the Kindle Fire HD was the most popular and best-selling item in Amazon’s e-commerce ecosystem. In fact, the top four best-selling items in the platform are the four Amazon Kindle device collections. Amazon’s Tablet sales just trails Apple Inc. (NASDAQ:AAPL) and Samsung, according to IDC estimates as of Jan 2013.

Amazon has always been very open about its razor-blade business model of making margins on content, unlike its hardware rival, Apple which enjoys hefty margins on hardware. In the most recent quarter, Apple’s operating margins have been 31.6%, which is significantly higher than Amazon’s low single digit margins.

Not surprisingly, Amazon’s digital media content selection consisting of songs, magazines, books, TV show, audio books and apps saw an healthy increase of 21% 2012 with more than 23 million items, which is up from the 2011 year-end offering of 19 million items.

Amazon offers the “Earth’s biggest collection,” and likely has a lot more content than Apple’s iTunes. In early 2013, the iTunes division of Apple boasted more than 500 million active accounts, compared to Amazon’s 200+ million active customer accounts. However, Amazon’s e-Commerce platform paves the way for customers buy a lot of additional content from its entire ecosystem.

Cloud Business Has Immense Growth Potential

Amazon’s other business segment, which includes the cloud computing business makes up only 4% to the revenue mix amounting to $2.53 billion. But Amazon’s Web Services business continues to gain momentum and should grow well over time due to newer initiatives.

It is reasonable to believe that Amazon Web Services (AWS) will maintain its growth trajectory primarily due to more innovative product offerings and the reduced pricing in the pay-as-you-go model. In addition, it is also expanding its foot-print in the global market with newer locations

Amazon Reigns Supreme

Amazon has evolved into a hardware company, as well as an e-Commerce disruptor. Its cloud computing platform has immense long-run potential and only widens the company’s moat. The key to assessing Amazon is to focus on the firm’s “technological empire” which it is slowly carving out. The ability of that empire to churn out very high amounts of free cash flow while doing good for the end-consumers is exactly how Amazon should be assessed. Meaningless numbers like P/E multiples can be easily ignored.

The article Amazon: Newer Highs Await? originally appeared on Fool.com and is written by Ishfaque Faruk.

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