Where next for one in a trillion Amazon?
Amazon’s latest blockbuster results have seen Wall Street analysts value the e-commerce giant in excess of $1 trillion. How, asks Scott Thompson, does the e-commerce giant top that?
Whenever Amazon pulls yet another stellar performance out of the bag, I’m reminded of Woody Allen’s comment to Diane Keaton in Annie Hall: “A relationship, I think, is like a shark. It has to constantly move forward or it dies. And I think what we have on our hands is a dead shark.”
So, if Amazon is a shark (and there are many traditional retailers who view it as just that) how does it keep moving and what are the obstacles ahead of it? "We believe that even without margin expansion in core retail, the other businesses can drive significant profit growth over the coming years and will make Amazon the first trillion dollar company," Macquarie analyst Ben Schachter wrote in a note to clients, following the latest results.
"As its core first and third party retail sales continue to take significant share from virtually all competitors, its subscription business, Amazon Web Services (AWS), and advertising business are all exceeding expectations markedly."
AWS was indeed a star first quarter performer, with revenues up 49% to $5.4 billion. The cloud computing arm has had the unusual advantage of a seven-year head start on the competition, noted Amazon boss, Jeff Bezos. “As a result, the AWS services are by far the most evolved and most functionality-rich. AWS lets developers do more and be nimbler, and it continues to get even better every day. That’s why you’re seeing this remarkable acceleration in growth, now for two quarters in a row.”
Another growth area is the groceries sector. Last year, Amazon acquired Whole Foods for $13.7 billion, a huge deal that fired it into hundreds of physical stores. Could the Sainsbury's and Asda's mega merger announcement be the catalyst for Amazon to make a move for Morrisons?
Then there's India, Amazon's fastest growing online marketplace. A formal offer has just been made to buy 60% of Flipkart, putting Jeff Bezos et al on a collision course with arch rival Walmart. More on that here.
It should be noted that Macquarie’s Schachter also sounds a note of warning. "Our primary concern remains regulatory risk and the growing potential for political interference. Amazon’s continued success is sure to attract more attention from governments around the world than ever before."
In the US, at least, it looks like President Trump’s Twitter rants against the company (it is competing unfairly, killing mom and pop retailers etc etc) are falling on deaf ears. Recent GlobalData research found that most Americans dismissed the view that Amazon has monopoly power. Two-thirds of the 2,505 people surveyed believe there is no need for an investigation into its dominant position.
The feeling is that the company attained its power and scale by being receptive to demand and giving customers what they want. Well over half think Amazon worked hard to achieve its success, while almost 46% note that the firm is innovative. Only 14.3% state that government lobbying helped Amazon to where it is today.
“There is no doubt that Amazon’s rise has been inconvenient for other retailers and that it has caused disruption. In our opinion, this is the market at work. Ultimately, Amazon’s advance has been a force for good, especially for consumers,” said Neil Saunders, Managing Director, Retail, GlobalData.