Amazon: Dancing With The Tigers

| About: Amazon.com, Inc. (AMZN)

Summary

AMZN is expanding six new fulfillment centers in India.

Positive implications as the company expands its logistics footprint in the region.

Long-term risk being BABA doubling down on India ecommerce.

Amazon (NASDAQ:AMZN) has invested in six new fulfillment centers in India ahead of the festive season in a move that shows the ecommerce giant's further commitment to the region. Although North America remains an attractive market with significant growth prospects due to the 9-10% ecommerce penetration, India is a bigger growth opportunity given the weak infrastructure (which promotes mobile ordering) and 1bn+ population (which promotes commercialization of goods and services).

However, the competitive environment in India is ultracompetitive with local players such as Flipkart and Snapdeal as well as Alibaba (NYSE:BABA). AMZN could differentiate by leveraging its scale and logistics, something that the local players have yet to perfect and expand its market share at the expense of local players. However, BABA is a threat to AMZN's growth outlook and perhaps the battle in India ecommerce could slowly turn to AMZN & co vs BABA & co. I am bullish on both companies in their respective geographic footprints, but my bias is on BABA in ecommerce due to higher growth outlook and superior ecosystem in payment, mobile and logistics.

ET reported that AMZN is investing in six new fulfillment centers that will open up 5.5m sq.feet of storage for sellers on the marketplace who use FBA. Interestingly, over 80% of its sellers use FBA services given the quality of logistics services AMZN can provide. In India, AMZN offers services such as cash on delivery, guaranteed next-day, same-day and Sunday delivery. The new units will expand AMZN's footprint across 10 states, impressive but still lags that of the competitions that have most of the country covered.

The battle for India commerce will be between AMZN and local rivals. The good news is that in recent years local competitor Snapdeal, which is backed by Softbank and BABA, is losing its relevance due to the fact that its ecommerce platform is having difficult to compete against that of Flipkart or AMZN. Additionally the lack of proper ecosystem has also jeopardized Snapdeal's growth in the hypercompetitive environment. Per data from Nielsen, AMZN ranks first in terms of ecommerce brand recognition at 25%, followed by Flipkart at 21% and Snapdeal at 20%. I believe that Snapdeal's brand will erode overtime as users gravitate towards AMZN that can provide a superior service.

The risk to my call is doubling down of commitment by Alibaba on Snapdeal. Recent reports suggested that BABA may be interested in expand into India's logistics space (see: Alibaba: Setting Up The Iron Triangle) as well as ecommerce (see: Alibaba: Dancing With The Elephants). Doubling down on India could pit BABA against AMZN where neither have a clear first mover advantage and could result in multi-year losses as both ecommerce giants look for ways to achieve a dominant foothold in the region.

Conclusion

Global expansion is certainly a positive theme for AMZN but competition from BABA is a long-term risk. Remain bullish on both stocks but my bias is BABA in the long-run.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.