AMAZON
Raunak Onkar, fund manager and head of research, PPFAS
Amazon is popularly known as an online e-commerce retailer but is in fact a combination of multiple businesses. One is their flagship retail business, Amazon.com/.in.
Amazon has a small private label business which sells their own brand products in various categories. But, they are also a marketplace where other sellers can list and sell products on Amazon sites and Amazon provides them with logistics, order management and advertising services. Amazon also generates revenue by allowing brands and third-party sellers to advertise on their platform to make their products / listing more prominent.
Amazon (AWS) is one of the largest cloud computing service providers in the world which right now generates 2/3rd of the company’s profits.
They continue to reinvest in their own business and expand across geographies and services because of which their reported profits look weak however their cash flow generation is strong and remains optimistic as their businesses are operating within the emerging trends at the moment.
R J Hottovy, Morningstar sector strategist
- Economic Moat: Wide
- Economic Moat Trend: Stable
- Fair Value: $2,500
- Fair Value Uncertainty: High
- Stewardship Rating: Exemplary
Amazon's disruption of the retail industry is well documented, but the company continues to find ways to evolve its business model. Its operational efficiency, network effect, and a brand intangible asset give its marketplaces sustainable competitive advantages that few, if any, traditional retailers can match. The combination of competitive pricing, unparalleled logistics capabilities and speed, and high-level customer service makes Amazon an increasingly vital distribution channel for consumer brands (especially in light of COVID-19 operating restrictions hindering physical retailers).
Even with more retailers looking to expand online, we believe Amazon will maintain its consumer proposition through expedited Prime shipping, an expanding digital content library, and new member benefits. Aided by more than 480 million estimated global active users, 155 million global Prime members, and fulfilment infrastructure, technology, and content investments, Amazon owns one of the wider economic moats in the consumer sector and is likely to reshape retail, digital media, enterprise software, and other categories for years to come.
Amazon must maintain its value proposition and logistics efficiency to drive site traffic while competing with other merchants for market share. International growth brings unique regulatory challenges, as foreign governing bodies are constantly amending online commerce laws, often to the benefit of local competitors.
