Amazon's shares are hot, but success is here to stay

For more than a decade, some smart, successful investors have been saying that (AMZN) wouldn't succeed, because its business plan was flawed. Meanwhile, the company built its reputation as an online bookseller, added more products, and boosted sales.

During that time, Amazon's stock was volatile, racing higher through price targets set by the likes of former Wall Street analyst Henry Blodget, and then reeling through declines of more than 50 percent as investors and analysts doubted its ability to grow. Last week, the stock reached a record-high after reporting earnings. Has Amazon finally convinced naysayers it's here to stay?

More analysts and investors this week are saying yes. Amazon increased product choices while keeping inventory low and without losing its focus on superior customer service. A bonus is Amazon's ideological leader, CEO Jeff Bezos, who, like Apple (AAPL) CEO Steve Jobs and Google (GOOG) CEO Eric Schmidt, serves as a chief motivator.

Amazon CFO Thomas Szkutak said worldwide sales were up 28 percent over last year, to $5.45 billion, for the most recent quarter. It spent 2.6 percent of its revenue on marketing itself as a one-stop online shop. Its inexpensive shipping costs have led to customers to expect cheap or free shipping, which eliminates a main hurdle for getting consumers to shop online.

James Mitchell, a Goldman Sachs analyst, asked Szkutak during Amazon's earnings call last week about North American sales, up 23 percent to $2.84 billion from a year ago. Szkutak said customers buying more in each order boosted sales in the most recent quarter. He also pointed out that Amazon has $4 billion in cash, which gives it a solid foundation and shows that it's building muscle.

"Amazon weathered the economic downturn better than traditional retailers," said Benchmark analyst Fred Moran. "As those traditional retailers struggled, Amazon gained share." Moran last week upgraded Amazon shares to buy from hold, and set a 12-month price target of $143 a share. "In the midst of a tough retail environment, and while consumers have been challenged, Amazon has grown, and now that we're seeing some consumer relief, Amazon continues becoming more dominant," Moran says.

For Amazon, success has led to more success. The larger the company grows, the more customers it attracts. There were many doubters, but it has built the default online mall. Amazon's not merely succeeding -- it has proved it's here to stay.

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