Amazon.com, Inc. (NASDAQ:AMZN) could do all these things and much, much more in five to ten years. Possibly sooner.
Future so bright they gotta wear shades
After reading Oprah’s Wow 2013 list, I was most inspired by #36, a start up company called Matternet that is experimenting with delivering medicine and food by drone to inaccessible areas in Haiti and the Dominican Republic.
Maybe drones couldn’t deliver a 52 inch flatscreen, but that little electronics gadget or to-die-for shoes is a distinct possibility. One day, the skies could be so full of Amazon.com, Inc. (NASDAQ:AMZN) drones it would look like Hogwarts during mail call.
Polite delivery people in jet packs, probably thanks to Elon Musk and Tesla, will rush that missing dinner ingredient to your door. AmazonFresh is already delivering groceries in Seattle and will be available in LA and San Francisco before year end. Reuters reports 20 more cities are rumored for 2014, and there is further speculation for 40 cities in total and international Fresh delivery.
Then e-books bought on Amazon.com, Inc. (NASDAQ:AMZN) could be delivered to your Amazon.com, Inc. (NASDAQ:AMZN) reading glasses. Prescription glasses aren’t too hard to factor in, as another name on that Oprah list (#19) offers prescription glasses that you can dial your prescription into the lens, no optician needed thanks to fluid injection technology. If Silicon Valley’s history of follow-on imitation repeats itself, Amazon.com, Inc. (NASDAQ:AMZN) could very well develop a version of Google Inc (NASDAQ:GOOG) Glass or partner with them.
Every year, Fast Company lists the 20 most innovative companies ranking Amazon at number two for its expedited delivery (same day shipping in some cities) of their special smiley boxes. The company announced on July 29 that it would be hiring 5,000 workers for its fulfillment warehouses.
Why couldn’t Amazon.com, Inc. (NASDAQ:AMZN) build its own version of an Apple Inc. (NASDAQ:AAPL) iWatch? Apple Inc. (NASDAQ:AAPL)’s design genius, Sir Jony Ive, is reportedly hard at work on the watch, and a hundred patents have been filed worldwide by Apple Inc. (NASDAQ:AAPL) for a watch-like device.
Other companies also working on versions of wearable devices include Sony, Microsoft, Samsung. Citigroup analyst Oliver Chen predicts an iWatch could be a $6 billion business for Apple since watches are a high gross margin — 60% or larger — item.
Add some of Amazon’s delivery expertise and your GPS enabled watch could tell you which ramp to get off for that cronut you crave. Swipe the cronut over the watch and know how many delectable calories it is and how long it will take to work off at the gym.
And finally, Amazon could enter the internet fiber game one day and maybe it should. Google Inc (NASDAQ:GOOG) has its Google Inc (NASDAQ:GOOG) Fiber, its best new hope to wire America which it started in Kansas City where it calls it the “fiberhood.” Amazon was the original cloud pioneer, so why would fiber be a stretch for them?
Levering internet access with Prime, the paid entry to Amazon’s ecosystem and “gateway” to its budding media streaming empire is a natural. Amazon Studios is creating original content and not local access cable quality with big production values and A-list actors. Prime is of critical importance to Amazon’s bottom line.
Back from the future
All three companies reported earnings in July. Apple has allayed fears of declining iPhone sales with 31.2 million sold in Q1 and CEO Tim Cook reassured investors that the “something big” is imminent, saying, “We are laser-focused and working hard on some amazing new products that we will introduce in the fall and across 2014.”
Results were mixed with better iPhone and iTunes sales, but iPad and Mac sales declined and gross margin contracted from 42.8% a year ago to 36.9%. It may be time to think of Apple less as a superior growth stock and more a technology consumer staple, a value name with its trailing P/E of 11.30, and with a 2.80% yield at a 27% payout ratio. That percentage has also risen from 19% just weeks ago.
It has $46.97 in cash per share, up from $41.70 just a few months ago. Its margins are superior to Amazon’s (0.15)% profit margin and 0.95% operating margin at 22.28% and 29.46%, respectively. Apple’s PEG now rests at 0.63.
Amazon’s Q2 earnings weren’t terrible with operating cash flow up 41% and net sales up 22%. However, the net loss of $0.02 per diluted share compared to a net profit of a penny in Q2 of 2012. The forward P/E is now 107.24 with a PEG of 9.37. Despite the loss, the stock is still only 2.5% off its all time high of $309.78.
It was a chock-full release with news of cloud and government FedRAMP compliance, Kindle Appstore, Kindle sales, and on and on but most importantly, CEO Jeff Bezos said, “This past quarter, our top 10 selling items worldwide were all digital products – Kindles, Kindle Fire HDs, accessories and digital content.”
While Amazon’s EPS growth has been (13.58)% for the past five years per annum, its expected five-year EPS growth rate is 37.13%, twice as much as Apple’s 18.28%. All these futuristic visions of mine are predicated on Amazon managing to dramatically expand those margins.
Google reported Q2 earnings that disappointed with cost-per-click ad prices down 6%, and revenue of $11.1 billion and EPS of $9.54 coming in lower than expected. CEO Sergey Brin also stated that the company was planning some “significant capital expenditures.” The stock sold off initially, but news that its Chromecast dongle (a $35 gadget that allows seamless streaming from your TV to other devices) is sold out buoyed the stock.
Analysts see five year EPS growth at 14.50%. The trailing P/E is now 25.78 with a PEG of 1.40. Google still has $163.39 cash per share and its operating and profit margins at 23.94% and 20.85%, respectively, are in-line with Apple.
If past is prologue
Amazon is a company of dreamers and a dream of a stock. All three are, to be fair. These visions could even manifest through Apple or Google. Regardless, any one of these is a buy for five…ten…or twenty years.
The article Dream the Future of Amazon With Me originally appeared on Fool.com and is written by AnnaLisa Kraft.
AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, and Google. The Motley Fool owns shares of Amazon.com, Apple, and Google. AnnaLisa is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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