The tech sector is by far the most volatile area to invest your money in. In fact, renowned value investor and multi-billionaire Warren Buffett knows this. He has recurrently avoided tech stocks and has, on several occasions, publicly said that he was not in a position to predict the future of social-media giant Facebook Inc (NASDAQ:FB) and iPhone-maker Apple Inc. (NASDAQ:AAPL). Buffett’s only prolific bet on tech was his huge 2011 International Business Machines Corp. (NYSE: IBM) buy; a $10.5 billion buy that secured him a 5.4% stake in IBM.
Despite the volatility in tech, I personally believe that there are a few players with predictable futures; tech players that not only have forward-looking prospects but that also exude the all-important element of longevity. One such player is Amazon.com, Inc. (NASDAQ:AMZN).
I know what’s going through your mind right now. “Isn’t that the stock that saw its past quarter’s net income drop a staggering 37%?” Yes it is. However, the decrease in profit was a sacrifice that, in my opinion, signals the company’s inclination toward long-term growth.
Tradeoff between immediate returns and long-term growth
As ancient philosopher Plato would have put it, “better be ignorant of a matter than half know it.” Amazon.com, Inc. (NASDAQ:AMZN)’s 37% decline in profit did not happen without good reason. In fact, the company’s top line increased notably, gaining 22% year-over-year to come in at $16.1 billion from $13.2 billion a year earlier. The reason behind the strained margins was the management’s conscious decision to spend more on growth-disposed projects.
One such project is the building of distribution warehouses throughout the country. These warehouses are close to key metropolitan areas such as New York and San Francisco. The building project has gone on for a while now, and more and more warehouses are popping up throughout the country.
What’s the catch with huge brick-and-mortar establishments?
Let me work from behind. Forrester, along with other notable research companies, believes that U.S. online-retail sales are on the rise. Forrester in particular contends that online-retail sales will hit $370 billion by 2017. In 2012, U.S online-retail companies grossed a collective sales figure of $231 billion. This figure is expected to increase 13% to $262 billion in 2013. In addition, the growth of online-retail sales is expected to outpace conventional brick-and-mortar retail sales within the next half decade.
What does this mean for the U.S? This means that there will be a lot of online activity and consumers, more than ever, embracing the use of technology. By establishing distribution warehouses all over, Amazon will be able to achieve same-day delivery, allowing it to gain the favor of consumers who will, in the near future, buy goods and services online more than they do in brick-and-mortar stores. The opportunities that this opens up for Amazon.com, Inc. (NASDAQ:AMZN) are unimaginable.
In digital content and the tablet sector, Amazon.com, Inc. (NASDAQ:AMZN) is doing a lot to fend off competition and remain relevant. In digital content, it beat Apple Inc. (NASDAQ:AAPL) to filing a patent that pushes for the creation of a market place for used digital goods. Apple’s move to file a patent application to create a marketplace for used digital goods came after Amazon.com, Inc. (NASDAQ:AMZN) had won a similar patent several months before.
Although signing for a patent doesn’t necessarily mean that a company will follow through, it is a great indicator. Apple Inc. (NASDAQ:AAPL)’s patent application keys out a system that, if implemented, would allow users to transfer exclusive access to digital content. Here is the key headline in Apple’s patent: “the transferor is prevented from accessing the digital content item after the transfer occurs.”
Focus on mobile payments – ingenious move
Mobile payments have paid off handsomely for some players. eBay Inc (NASDAQ:EBAY), which performed impressively in the past quarter, can attest to this. Although online payments from PayPal didn’t fully account for its past quarter’s earnings, headway made by PayPal and the contributions that mobile made greatly boosted its earnings.
In the past quarter, PayPal’s sales grew 18% to $1.5 billion. This was largely due to the 5-million added users during the quarter, 2.8 million of which were added through mobile. This alone shows how mobile, and the ability to make payments through mobile phones, is becoming more important.
In yet another patent application, Amazon.com, Inc. (NASDAQ:AMZN) has filed for an anonymous mobile payments system. Again, this move will be useful in building a moat to ward off competition in the future. Under the patent, Amazon will be able to facilitate mobile payments without disclosing personal or private information of users to other parties. This whole system will work through redeemable codes, protecting the privacy of users in a tech space where privacy has become increasingly important. I believe that this will create a unique selling point for the payment system.
Conclusion
All these forward-looking moves show that Amazon.com, Inc. (NASDAQ:AMZN) is concerned in establishing a footing in the future, not now. What does this mean for the stock? This means close to assured growth. Don’t expect any inexplicable shoots in share price, but expect sustained, healthy growth moving forward.
The article Amazon Promises Longevity originally appeared on Fool.com and is written by Lennox Yieke.
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