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Are Amazon's High-Growth Days Over?

- By Harsh Jain

Amazon.com Inc. (AMZN) rewarded shareholders with healthy returns in 2016, and the stock has displayed strong sign of upward momentum this year as well. The stock is up more than 25% year to date, whereas several of its competitors such as Target (TGT) and Sears Holdings (SHLD) are still struggling to find their way into the green.

Amazon has turned itself into the largest e-commerce company by revenue in the U.S. and operates in three broad segments comprising electronics, media and other merchandise. Amazon reported superb first-quarter results in April. For the first quarter, the company posted earnings per share $1.48, outstripping the analysts' estimate by a wide margin of 35 cents.

On the other hand, the company's revenue came in at $35.70 billion, again beating the consensus by $400 million. Furthermore, that figure signifies a surge of 22.5% year over. Most important thing to notice is that despite continuously growing competition, the company has successfully managed to grow its revenue at a strong rate.

Over the past eight quarters, the company's revenue has surged at an average of 23.5% which clearly suggests that the growth is not over for the e-commerce giant yet.

Moving onward, Amazon Web Services (AWS) continues to display strong signs of growth as it is enticing more small businesses as well as big enterprises to its cloud platform. In the most recent quarter, the revenue from AWS segment surged 42% to $3.66 billion.

AWS carries on providing both growth and profitability to the e-commerce giant's portfolio and accounts for more than 10% of its overall revenue. Furthermore, the operating income from this segment also increased 48% to $890 million.

As a matter of fact, India is one of the largest emerging markets around the globe in terms of revenue. According to a forecast report from emarketservices.com, the e-commerce market in India is projected to grow to $120 billion by 2020, representing a significant jump from $30 billion in 2016. That figure also signifies a yearly growth rate of 51% in 2016 to 2020.

Amazon holds a leading position in India, beating all other e-commerce websites. Moreover, the e-commerce giant is making several smart moves to further strengthen its lead in one of the fastest-growing markets.

The e-commerce giant launched its exciting "Prime" service in August 2016 in India and had swiftly been adding to its Prime opportunities. The company has amplified Prime selection by 75%. Furthermore, it also plans to continue adding more items to its Prime selection. As a result, this move will surely help the company to snatch customers from its chief rivals such as Flipkart.

Apart from this, Amazon also provides a video streaming service that is not offered by any of its competitors in India. Recently, the e-commerce giant added many original TV series to its streaming service.

In India, only Flipkart looks like a potential candidate to compete against Amazon. However, Amazon is making several smart moves that will help it to grow in the future.

Summing up

Amazon ended 2016 in the green, and it looks like the story will be the same this year as well. The e-commerce giant is making several smart moves that will certainly reap fruitful results in the coming years. Moreover, Amazon Web Services continues to lead the public cloud market with around 40% market share.

The e-commerce giant trades at a price-earnings (P/E) ratio of 181.79, which suggests that the stock is highly expensive at the current market price. Despite being expensive, the stock still has high growth potential.

As a result, existing shareholders should continue holding the stock for future gains, and shareholders looking to initiate a position in the stock should wait for a better entry point as it currently hovers around its all-time highs.

Disclosure: No position in the stocks mentioned in this article.

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This article first appeared on GuruFocus.