The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Amazon Stock Forecast

Summary:

Amazon is reported to have paid $650 million to take 100% control of Souq.com.

Based in Dubai, UAE, Souq.com is the biggest online retailer in the Middle East. It was previously valued at $1 billion after it raised $275 million in venture funding round last February 2016.

Souq leads in the e-commerce industries of Saudi Arabia, United Arab Emirates, Oman, Kuwait, Qatar, and Bahrain.

Like Lazada, Souq offers free returns and Cash-on-Delivery shopping, which is an attractive payment scheme for wary online shoppers.

AMZN has very positive short and long-term algorithmic forecasts from I Know First. Market trend signals suggest that AMZN’s stock price is likely to breach $900, rather than fall below $800.

Zahraa Alkhalisi of CNN speculated last December whether Amazon (AMZN) will buy the Middle East’s biggest online retailer, Souq.com. Alkhalisi’s question was answered last week by rumors of Amazon allegedly agreeing to pay $650 million to take 100% ownership of Souq.com. It’s a great deal because Souq.com was previously valued at $1 billion last February 2016.

Founded in 2005, Souq raised $425 million in venture capital so far. Amazon paying $650 million will allow early investors and founders of Souq.com to cash out at a profit. My analysis is that the founders and early investors of Souq.com feared competing with the recently launched online shopping portal Noon. Saudi Arabia’s sovereign wealth fund put up half of the $1 billion initial capital for Noon.com. It is therefore a government-backed challenger to Souq.com’s dominance in the Middle East online shopping industry.

However, I believe Amazon’s decades of experience in online retail made it tough enough to challenge any online shopping companies in the world today. Bezos buying Souq.com only shows Amazon is not bothered at all by Noon.com. It will take years before Noon could build a customer base like what Souq has right now.

We only have to check at the site traffic rankings to realize that Noon.com has a lot to go before it could be a real rival to Souq.com. Souq has the no.7 most visited site in UAE. Noon is far behind at no. 2,776.

(Source: similarweb.com)

Why Souq.com Is Attractive

In essence, Souq.com operates like Lazada, the biggest online retailer in Southeast Asia. They both offer Cash-on-Delivery (COD) payment which helped them grow fast over the last five years. Offering a COD payment option definitely encourages people to shop more since it is safer than credit card payments. COD also increases the total addressable market of online retailers who offer them.

Unlike in America and Europe, Southeast Asia and the Middle East have much lower credit card penetration. COD is obviously the best payment option for people who do not have credit cards but would like to shop online.

Source: Souq.com

The reason why Amazon and eBay (EBAY) failed to gain traction in the Middle East, Africa, Southeast Asia, and South America is that they both failed to offer Cash-on-Deliver payment options. COD made Souq and Lazada popular among online shoppers in their respective areas.

Alibaba (BABA) paid $1 billion to acquire a controlling interest in Lazada last year. If Amazon did not buy Souq.com, Alibaba would eventually buy it. As of October 2016, Souq had 6 million customers. This large amount of customers is attractive to any e-commerce firm seeking growth.

Source: Mckinsey.com

The Middle East Is The Next Expansion Opportunity

Buying Souq.com is a judicious expansion move for Amazon. Souq.com caters to the growing e-commerce industries of oil-richGulf Cooperation Council (GCC) member countries UAE, Saudi Arabia, Kuwait, Qatar, Bahrain, and Oman. The citizens of the said countries are obviously coveted customers for Amazon. The online shopping done in the said GCC countries was estimated to be worth $20 billion by 2020.

AT Kearney estimates that GCC e-commerce business was only $5.3 billion in 2015. GCC countries, where Souq.com is the leader, therefore offers substantial growth opportunities for Amazon. In addition to the Cash-on-Delivery option, Amazon could significantly increase the repeat customers of Souq.com by also offering its U.S.-style Amazon Prime membership service.

Amazon could easily recruit 5 million Middle East loyal customers if it entices them with free shipping, movies, music, games, and discounts.

Conclusion

Amazon is better off focusing on the Middle East e-commerce markets. There is little hope of Amazon gaining a foothold in Southeast Asia. Alibaba-owned Lazada already dominates the said area. Amazon needs to succeed in markets outside North America and Europe to sustain its double-digit revenue growth rate.

In the long run, the oil-rich countries might prove to be a bigger e-commerce opportunity than Southeast Asia. There are fewer people in the Middle East. However, the citizens of GCC countries obviously has stronger purchasing power than those found in countries like Indonesia and the Philippines where Lazada operates.

Amazon’s purchase of Souq.com is another good reason for investors to remain long on AMZN. The positive 30-day, 90-day, and one-year algorithmic forecast for Amazon’s stock are also strong incentives to add more AMZN to our portfolios.

I am long Amazon and my 12-month forecast is that AMZN will breach $900.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.

I Know First Past Success With AMZN

On April 15, 2016, an I Know First analyst wrote a bullish article for AMZN. Amazon’s decision to offer standalone Prime Instant Video subscription service expects to take market shares from its competitor Netflix. In accordance with I Know First’s self-learning algorithmic forecast, AMZN shares increased by 36.22% since the forecast’s release.