Amazon – Strong Buy

E-commerce powerhouse Amazon (AMZN) isn’t just a disruptive digital retailer or public cloud kingpin anymore; it’s a disruptive tech company that’s not afraid to put up a fight if there’s a market that’s up for grabs. With a focus on margin expansion, it’s not a mystery to see Amazon make a push into video-streaming services and video gaming.

Indeed, video gaming could become the next big-margin business for Amazon, as more consumers look towards more engaging content. As game-streaming opens the floodgates to a new kind of casual gamer, it’s not a mystery as to why so many tech firms are hungry to make noise in the fast-growing market.

Undoubtedly, gaming will be the number-one reason to buy a headset and plug into the metaverse of tomorrow. Meta Platforms (FB) isn’t the only company with its sights set on the metaverse.

Arguably, it’s not even the best metaverse play, nor is its success in the metaverse guaranteed. Although Meta wants to be a dominant force in the metaverse, the likeliest scenario will see many firms, including Amazon, have their own unique, digital worlds. In any case, I am bullish on Amazon’s gaming ambitions and its stock.

Amazon Has a Solid Video-Gaming Foundation

As one of the most disruptive forces over the past decade, it would be a mistake to count Amazon out, as it looks to make a splash in what could be its next big margin-enhancing segment. Currently, I’d argue that Amazon has a better gaming foundation than Meta. Such a foundation could allow Amazon a smoother transition into the metaverse.

Through Prime Gaming, Luna, Twitch, and Amazon Game Studios, Amazon has an excellent foundation to build on. As we inch closer to the metaverse, you can count on Amazon to leverage its very deep pockets to build upon each pillar of its gaming foundation.

While the foundation may pale in comparison to the likes of Microsoft (MSFT) at this juncture, I do think it’s a mistake to count Amazon out of the game, as it looks to do to video gaming what it did to e-commerce or cloud computing.

Amazon: Could It Acquire Its Way to Gaming Dominance?

Amazon will be playing catch-up for years in the gaming space. Microsoft is too far in the lead, especially if its Activision Blizzard (ATVI) deal goes through. Undoubtedly, the acquisition of Activision Blizzard adds a legendary line-up of gaming brands to its already deep gaming roster.

With so much consolidation activity going on in the video-gaming market these days, it won’t be long before there aren’t any more dance partners left on the floor for big-tech firms to pair up with.

Indeed, Take-Two Interactive Software (TTWO) looks like a prized takeover target. Whoever wishes to pursue the firm will have to pay a pretty penny to the magnitude of at least $19 billion, though (its current market cap).

Amazon isn’t known for acquiring companies at unreasonable prices, although some may argue that Amazon’s Whole Foods acquisition was on the pricey side. In any case, Amazon may have to keep an eye open on M&A opportunities if it’s to grow its gaming business into something that could take the gaming world by storm.

Amazon May Not Need a Blockbuster Acquisition to Grow Gaming Segment

For now, Amazon looks content with creating new IP (intellectual property) with big-budget developments like its MMORG (massive multi-player online roleplaying game) New World or publishing intriguing titles developed by other studios.

Indeed, partnerships and a focus on IP could offer Amazon a great bang for its buck. Instead of throwing money across a wide range of titles, Amazon may be busy working on the next blockbuster success that takes the gaming world by storm. All it takes is one or two titles to make a massive dent in the gaming industry.

Take the dominance of Epic Games’ Fortnite, Mojang’s Minecraft, Valve’s Dota 2, or Blizzard’s World of Warcraft. These are profoundly-successful games that can be profit drivers for many years following their releases.

Even if Amazon doesn’t make the next big gaming acquisition, I think its intriguing strategy could allow it to stand neck and neck with Microsoft over the next decade and beyond.

Wall Street’s Take

Turning to Wall Street, AMZN stock comes in as a Strong Buy. Out of 32 analyst ratings, there are 32 Buy recommendations.

As for price targets, the average Amazon price target is $4,192.97, implying an upside potential of 32.6%. Analyst price targets range from a low of $3,600 per share to a high of $5,000 per share.

The Bottom Line on Amazon and Its Gaming Push

Yes, Amazon’s gaming business is currently far less developed than its rivals. That said, all it will take is one World-of-Warcraft-like blockbuster to change the game (pardon the pun). Currently, the MMORG, MOBA (Multiplayer Online Battle Arena), and Battle Royale are popular subgenres that hold the most promise. Whether such subgenres yield the next blockbuster, though, remains to be seen.

The recent success of Amazon-published titles like Lost Ark and New World is nothing short of encouraging. Though they’re not Warcraft-like blockbusters, they represent a strong start for Amazon.

What could the future hold for Amazon Gaming? We’ll have to wait and see. Count me as unsurprised if Amazon is behind the next big game at some point over the next 10 years, though, whether or not the company pursues a massive acquisition or opts to grow its gaming foundation more organically.