If you were to look at share prices in isolation you would assume that Amazon had fallen through the floor and profits were down. The fact is that the recent profit announcement showed significant growth but concerns for the immediate future. This has spooked many analysts who took out their red pens to Amazon price targets after the shares fell. However, is it fair to say that Amazon has gone ex-growth?
Amazon share price performance
Over the last 12 months the Amazon share price has risen from US$1390 up to a high of US$2039 and now stands at US$1626. While it has been something of a bumpy ride over the last 12 months, Amazon continues to increase its market share. Analysts believe that sometime in the short to medium term the company will account for more than 50% of online sales. When you bear in mind the size of the online sales market this is absolutely astounding!
Companies like Amazon adapt
If you cast your mind back to the early days of Amazon, the loss-making online retailer, it had no friends in the world. Analysts mocked the business model which saw profits rolled back into the company in the hope of creating a stronger profit stream further down the line. When Amazon finally did “crack it” the company became one of the largest companies in history. Analysts were wrong and Jeff Bezos and his fellow directors were proved right. So, why do analysts suddenly think they know better?
Moving with the times
The simple fact is if you are a retailer then at some point, assuming you are successful, you will need to have an Amazon sales stream. It is not only the fact that Amazon gives you exposure to a literally worldwide market but it is also the trust factor. Many people automatically trust what they see an Amazon, promotions, price reductions and other strategies aimed at grabbing your attention. If they saw these on your website they may not be as impressed – probably not as likely to buy straightaway as it may take some time to build up the trust factor. As a retailer in the modern era, piggybacking the success of Amazon is the quickest way to the market.
Expansion, expansion, expansion
If there is one thing you could say about Amazon, this is a company which is constantly on the move and looking ahead. Since the share price fall last week one analyst has come out to suggest that Amazon’s opportunities for this year are “mostly unconstrained”. The simple fact is that Amazon has yet to reach saturation point, there are still markets out there which are not dominated by the company. It is also likely that we will see the company branch out into different subsectors as we saw with the acquisition of US giant Whole Foods.
There is potentially one issue in the longer term, the growing influence of Amazon in markets across the world. It is maybe fair to compare this to Microsoft when it dominated the market before regulators demanded it was broken up. However, these issues are well down the line and the company will likely diversify in the short, medium and longer term to dilute this perceived influence. Time to start tucking away Amazon shares for the long term?