Amazon Is Wal-Mart, The Next Generation

Cowen analyst Jim Friedland Tuesday morning raised his rating on Amazon.com (AMZN) to Outperform from Neutral, essentially asserting that, well, you ain’t seen nothing yet.

“We expect its share of the consumer wallet to increase materially, driven by greater penetration of non-media categories, higher frequency of orders per customer due to growing adoption of Amazon Prime and reinvestment of profits from high margin revenue streams into lower prices,” he writes in a research note.

But that’s not all.

Friendland also contends that “Amazon’s aggressive investment in search, site content, customer service, digital distribution and third party platform have resulted in a sustainable competitive advantage.”

Not least, he says the Kindle e-book reader positions the company to benefit as the book market transitions from physical to digital media.

Friedland notes that Amazon has 9.5% of the U.S. book market; he thinks they are well-positioned to gain share in other categories. He notes that the company is only 0.3% of U.S. retail sales, versus 7.7% for Wal-Mart (WMT). “Amazon is a next-generation Wal-Mart,” he contends. “The company’s focus on lower prices and a superior shopping experience versus online and offline competitors will result in substantial share gains over time.”

AMZN Tuesday is up 92 cents, or 1.1%, to $83.95.

Original post

Comments

[PastTense:]

While Amazon is a major retailing success, it is not accurate to call it a Walmart. Walmart strength is one-stop shopping of commodity items. Amazon's strengths is in the long tail (Walmart offers tens of thousands of SKUs; Amazon offers millions of SKUs).

Jun 30 11:18 AM

[Egg:]

The sales tax man will eventually cometh for Amazon.

Jun 30 01:24 PM

[Mad Hedge F...:]

Look how they did on the Jackson thing. It appears that my website was one of the few that did not crash on news of the death of Michael Jackson. I wonder why? Twitter survived its first serious crash threat when traffic spiked to 65,000 tweets a second. AT & T’s network did less well, and almost came down. That’s better than Google’s search engine, which temporarily froze. Yahoo says they got the greatest number of clicks on a news story in its history. The Internet was built to survive a nuclear war, but was taken down by the passage of a drug addicted musician. You would think that the copyright holder on the Jackson titles, Sony (SNE), would do well, but not so. Instead, Amazon (AMZN) stock took off, offering for sale the top ten selling Jackson CD’s by the King of Pop. Most of them sold out in a day. I guess it’s a new world out there. Those with the best selling machine, win.

Jun 30 01:29 PM

[Jake Kimble:]

Valiant point made that AMZN's site did not crash and thus spiked with its rapid response to Jackson's passing. this shows how well the company is managed.

For the comment that AMZN is the next WMT, I believe that is a bit bold. Yes, AMZN is the leading internet commerce site but WMT is a multinational of epic proportions. AMZN still has room to grow, but with a P/E of 53, it may still be over priced. If growth stopped, would you be will to wait 53 years to earn back your investment in EPS? Who knows, maybe someday AMZM will be an online independent grocer that will deliver food and goods to your doorstep. Mobile commerce is not out of the question too. Could they start an auction site and take share from EBAY? Could they partner with wireless carriers, mobile chip makers, or mobile OS companies to offer its e-Kindle reader or similar, adjacent products like netbooks/smartphones? The possibilities are endless.

eCommerce continues to grow, but is the 53 PE justifiable?

Jun 30 01:51 PM

[Beacon Asse...:]

It is interesting to note who the "Market" is backing or believes the winner is going to be.

Approx Share Price Returns to June 30th 2009
1y 2y 3y 4y 5y 10y
Amazon 10% 20% 115% 150% 150% 40%
Wal-Mart -12% 0% 0% 0% -10% 0%

Jun 30 03:33 PM

[Beacon Asse...:]

Sorry for the layout confusion
It is interesting to note who the "Market" is backing or believes the winner is going to be.

Approx Share Price Returns to June 30th 2009

Amazon 1y:10% 2y:20% 3y:115% 4y:150% 5y:150% 10y:40%
Wal-Mart 1y:-12% 2y:0% 3y: 0% 4y:0% 5y:-10% 10y:0%

Jun 30 03:38 PM

[William May:]

Amazon isn't Wal-Mart. It's Sears circa 1900 - find anything you want in the Sears Catalog, some filled by the company; others filled by third parties.

Jun 30 09:24 PM

[Ted Hurlbut:]

I think the comparison between Amazon and Walmart is a good one. Walmart has established a nearly unassailable position as the leader in providing the lowest price in discount retailing. Amazon is establishing a similar dominant position online, if they haven't already. While one focuses on commodities and the other is thriving on the Long Tail, both are in commanding positions.

Jul 01 01:37 PM