The following is a guest blog post:
When it comes to e-commerce, none can quite compare to the size and respect of Amazon. From being a simple online book retailer to a massive marketplace and Internet solutions company.
Indeed, as many other companies have come and gone and investors have jumped on numerous trends, Amazon’s share price has been climbing at a steady pace.
Gone were the days of irrational exuberance where Internet companies were valued at numerous multiples of their earnings. Amazon has proven their profit model time and time again.
Of course, for many investors, one of the key questions that they may be asking is whether Amazon has potentially reached a peak and will eventually stop growing. Many trading signals are pointing to a possible correction.
Could investing now be too late? Does the share price still have steam and can Amazon keep growing. You would be surprised by the answer.
We will take a look at some high level fundamental analysis of Amazon’s market position and growth prospects to address the question most effectively.
Total Retail Sales
Although one would think that in 2017, most people would be buying online, this is not entirely the case. In fact, in the USA, 91% of total retail sales are done offline through brick and mortar retailers.
This means that there are still a large number of Americans who have to move to buying online almost exclusively. When looking at other countries in the emerging world like India, the numbers are even more impressive.
For example, Amazon has recently made a big push into India which many people see as the holy grail of the Ecommerce future. With over 1 billion consumers and growing internet coverage, Amazon is poised for much more growth.
In fact, eMarketer research firm has an estimate that global e-commerce sales will increase to more than $4 trillion by 2020.
Among consumers, the Amazon name has become almost synonymous with online shopping. When someone wants to buy something online, they gravitate right towards Amazon and search for their goods there.
In fact, about 55% of consumers begin their search for goods online right on the Amazon platform. This means that Amazon is taking away some business from search engines.
Sites like Google, Bing and yahoo have their share of product search traffic decline from about 21% of all searches to about 16% according to a BloomReach report.
What this shows is that consumers already associate Amazon as their first port-of-call if they wanted to buy something. This kind of brand awareness and consumer buying power is quite remarkable.
Consolidation & Liquidation
In the rest of the Brick and Mortar retail industry there is continual downsizing as they struggle to compete with the online retailers.
For example, Sears plans to close about 150 Sears and Kmart stores as they try to cut about $1bn in costs in 2017. However, this is unlikely to stop the slide in same store sales. In fact, many analysts are of the view that Sears may cease to exist in a few years.
Similarly, JC Penny has said that they will also close about 140 stores over the year. This is in fact about 15% of the current store base at JC Penny.
In a direct confirmation of the struggle to compete, JC Penny’s Marvin Ellison stated that “We believe closing stores will also allow us to adjust our business to effectively compete against the growing threat of online retailers”.
There are similar trends at other stores such as Office depot, Macy’s and Kohls. These trends show two things. Firstly, that Amazon is clearly taking over the traditional retail world. Secondly that as consumers have less choice to shop, they will naturally gravitate towards online shopping and hence Amazon.
Although Amazon’s share price has reached all-time highs, the view among most analysts is that there is still much more space to go.
Jeff Bezos is one of the most capable CEOs in the industry and is steering Amazon into different businesses and markets like not many others can.