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Can Amazon and Netflix Bounce Back in 2015?


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Two of the market's biggest dot-com rock stars have had a rough 2014. Amazon.com (AMZN) -- the world's leading online retailer -- has seen its stock shed a quarter of its value this year. Netflix (NFLX) was the biggest gainer among the S&P 500 companies in 2013, but this year it's been a different story. The leading premium provider of streaming video has seen its shares slump nearly 10 percent so far this year.

Netflix's slide may not seem so ominous, but keep in mind that the stock has shed nearly a third of its value since peaking just three months ago. That's a big drop in a short time, rivaling the disappointment Amazon investors have faced this year.

Thankfully, history is on their side. Amazon hasn't posted back-to-back years of stock declines since 2001. Netflix has yet to post two consecutive years of negative returns since going public in 2002. This certainly doesn't guarantee that either company's stock will bounce back in 2015, but it does show that Amazon and Netflix have been able to bounce back from adversity.

Bang a Gong, Amazon

At least one Wall Street pro thinks the leading online retailer will bounce back in the year ahead.

Piper Jaffray analyst Gene Munster put out a bullish note on Thursday, calling Amazon his favorite large-cap stock for 2015. He concedes that top-line growth may be decelerating, but argues that the market is being too hard on Amazon's recent margin crunch. The former dot-com darling is investing in everything from building out fulfillment centers offering speedier deliveries to establishing the server farms necessary to support its thriving Web services platform.

The market also has ignored Amazon rolling out expensive Kiva robots at its warehouses that are reportedly at least three times as productive as humans without the downside of fatigue or rising labor costs. Munster has an ambitious $400 price target on the stock, suggesting nearly 35 percent of upside from here.

Nothing but Netflix

There wasn't a popular Wall Street analyst pounding the table for Netflix on Thursday, but a day earlier we did see DISH Network (DISH) announce a deal to integrate Netflix's streaming application into some of its set-top boxes. This is the first deal of this kind signed with a pay-TV provider, paving the way for more deals. At the very least, the integration validates the Netflix model.

Unlike Amazon, which has been sliding through most of 2014, Netflix was holding up pretty well until its third-quarter results were announced in October. Netflix closed out the summer quarter with 3 million more subscribers than it had at the end of June. The market was hoping for more -- and perhaps more important, Netflix was forecasting for more -- but we still don't know if this was a fluke or if the historically conservative Netflix is starting to overestimate its appeal. Either way, you won't find too many premium subscription services tacking on a million net new users a month.


One thing that ties Amazon and Netflix together is that they have become the two leaders of premium streaming video. Netflix is the undisputed top dog in this space, even if it has meant disrupting its own mail-based DVD rental business. Amazon has emerged as a legitimate competitor as it beefs up the digital smorgasbord that it makes available to Amazon Prime subscribers.

The industry is paying attention. Earlier this month we saw Amazon ring up a pair of Golden Globe nominations for its original content. Netflix continues to build on the success of its proprietary content, landing seven nods this time around.

Motley Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends and owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. Want to make 2015 a winning investment year? Check out our free report on one great stock to buy for 2015 and beyond.


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