Whole Foods Acquisition Proves Amazon’s Dominance

Stock (Symbol)

Amazon.com (AMZN)

Stock Price

$981

Sector
Retail & Travel
Data is as of
June 13, 2017
Expected to Report
Jul 26
Company Description
amazon-videoAmazon.com, Inc. (Amazon.com) is an e-commerce company. The Company’s products are offered through consumer-facing Websites, which include merchandise and content that it purchases for resale from vendors and those offered by third-party sellers. It designs its Websites to enable products to be sold by the Company and by third parties across various product categories. It also manufactures and sells electronic devices, including Kindle e-readers, Fire tablets, Fire TVs, Echo and Fire phones. Amazon.com operates in two segments: North America and International. The North America segment focuses on retail sales earned through North America-focused Websites. The International segment focuses on the Company’s operations done through its international Websites. It serves developers and enterprises through Amazon Web Services (AWS). It serves authors and independent publishers with Kindle Direct Publishing. Source: Thomson Financial
Sharek’s Take
David SharekAmazon.com’s (AMZN) proposed acquisition of Whole Foods would cut margins in the grocery industry, but AMZN is shaking up many industries. Yes, Whole Foods with Amazon would change the landscape of grocery shopping — and put many competitors out of business (or cut into profitability). But this is just a regular day at the office for Amazon, which dominates many industries. So many, that we aren’t even aware of AMZN’s huge footprint on the economy. For instance, Amazon Home Services allows people to schedule services such as house cleaning, lawncare, furniture assembly as well as hire plumbers, electricians, painters and other contractors. Amazon is also expanding overseas. It recently started offering Amazon Prime in Mexico and just stated doing business in India four years ago, where its investing $5 billion in infrastructure including more than 40 warehouses. AMZN just acquired Souq.com, its first move into the Middle East. Amazon Web Services had 43% sales growth last qtr. AWS is a profit juggernaut, providing more than half the company profit on just 9% of total sales. Investors can’t look at the fundamentals with this stock, as the company shoves billions into expanding its dominance. But, its success is so good that now AMZN can’t help but to make a profit. The key to this is if Jeff Bezos stopped spending-to-grow a flood of profits would flow in. In the end, this the most dominant company in the world, and is a core holding for growth investors. The only issue now is the stock’s up from $700 to $1000 in a year, thus new investors should try to buy on a dip.
One Year Chart
Last qtr AMZN had 38% profit growth on 23% sales growth. The company beat the street, but estimates fell the prior three qtrs. Annual and qtrly profit estimates have fallen three straight qtrs as well. Qtrly profit Estimates are now -21%, 113%, 68% and 57%. we can’t get excited about the triple-digit growth ahead because estimates are falling. The P/E is 147, but investors don’t mind. The Est. LTG fell from 42% to 38% and now 27% the past three qtrs.
Fair Value
AMZN is expected to make $6.67 this year, $11.36 in 2018, and $18.48 in 2019. But these estimates are in decline, so don’t put faith in those numbers. Honestly, its difficult to get a grasp on what AMZN is worth. What I do know is the company makes money in the US and with AWS, and loses it Internationally as it continues to grow overseas.
Bottom Line
Amazon is the most dominant company in the world, and growth stock investors need to have this stock as a core holding. But the stock is currently extended, so this is a good time to take profits. The stock was $755 just two qtrs ago! New investors should perhaps try for a correction, or buy a little bit here and wait for a better price to buy more. AMZN ranks just 13th in my Growth Portfolio and Aggressive Growth Portfolio Power Rankings because the stock is high and due to correct.
Power Rankings
Growth Stock Portfolio

13 of 30

Aggressive Growth Portfolio

13 of 15

Conservative Stock Portfolio

N/A