Amazon: Market Share Machine (NASDAQ:AMZN)

The inspiration for this article came as I parked my car in the MSP cell parking lot, waiting for a call from my wife to tell me the plane had landed. It was a little late, so I had time to observe the air traffic.distant seconds Blue Airlines Delta (Dar),Amazon(NASDAQ: AMZN) was flying more planes Gets in and out more than any other cargo carrier.my return Peter Lynch for a moment.

A few weeks later, driving south on US 99 through the nut and fruit orchards of Central Valley, California, it was there again. We recognize that not all cabs and trailers carry branding, but among those Amazon dominated. Either we passed their semi or they passed us while driving before heading.

It’s the same thing in our neighborhood. Our mail carriers drive our circle once a day, as do FedEx (FDX) and UPS (UPS). However, Amazon’s delivery vehicles come here two or three times each day, from dawn until after dusk. This can also be seen from the motion detectors in our neighbor’s townhome and both ours. Occasionally, when the lights come on, I look out the window. If not a creature, it was an Amazon delivery man approaching his one at our front door. I have never seen a FedEx or UPS service his provider attack his motion detectors. Hmm.

About the package

What about those Amazon packages? A few months ago, a clever phisher broke into my girlfriend’s Amazon account with disguised emails from a neighbor in need of help. To get past the security screen, the company asked me to name three of her recent purchases. I couldn’t help but go back and check my purchase history (now locked). cat crate, garage tool rack, vacuum cleaner, jar of your favorite cranberry and horseradish sauce, COVID mask, toddler chair, clothing, hiking boots, toys, coffee pods, cosmetics, office supplies, hardback books, Streamed What about Kindle, Amazon Prime movies? A trip to Whole Foods counts, but my memory lost me. Their product list is inexhaustible.

delivery competition

I decided to go back and look at some non-BS metrics comparing Amazon to FedEx and UPS. How long the three companies have been in business, number of packages delivered worldwide per year, number of employees, annual revenue/growth and latest. Quarterly Gross Profit Margins (all courtesy of SA and Wiki, except packages delivered from various sources FedEx is questionable):

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Some argue that such analysis is bogus because these companies now operate under different business models (fulfillment centers, shipping hubs, drop-off locations, etc.). This is true, but they all serve the same base group of suppliers who are moving their products to the same base group of customers.

So, just because they have different value chains doesn’t mean they’re incomparable. Those who disrupt the status quo by using superior/“alternative” products, services and/or processes often outperform the competition. For example, 20 years ago someone might have argued that film and cell phone cameras are not comparable. We all know how it turned out.

And, as we saw above, this comparison is amazing. Amazon, with just over half as much as FedEx and one-fourth as much as UPS, beats them on every metric. Especially headcount, revenue and gross margin.

In fact, FedEx and UPS combined will fall short of Amazon. And what if Amazon is “mature” as a business, but continues to take market share away from its major competitors?

big box competition

Shipping aside, we decided to call Amazon three big retailers, or self-service fulfillment companies. Target (TGT) and Walmart (WMT) are of the ‘retail’ kind, and Costco (COST) is of the ‘wholesale’ kind. Sure, they all have online ordering and delivery capabilities. , my wife does not. This is the same analysis except the package delivery metric is irrelevant.

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*Target’s parent Dayton dates back to 1902.

Same basic story. Not so long ago, Amazon is well ahead of Target and Costco, and less so than Walmart. I have a friend who was an executive in his one of these companies when I started noticing threats from Amazon, without disclosing my sources. He and his colleagues went to his CEO to voice their concerns and ask if the business model needed to change. Their CEO declined (setting the situation above).

Growth investment

As far as investors are concerned, the backtest is how the stocks of the five competitors – FDX, UPS, TGT, WMT and COST – performed against the big dog AMZ (and S&P 500). that). Again, growth competitors Amazon have far outpaced them for the entire decade. Interpolate wisely – the company is still imperceptibly pulling away from its core competition, perhaps at a slightly slower pace.

Both the snapshot and trend line above show that Amazon is the rare bird in gaining market share while delivering shareholder value.

Plus, there’s nothing to suggest Amazon give up.As shown above, it’s financially strong with incredible cash flow and capital to keep going. You’ll find it in the insurance portal, the “influencer” home decor collection, the new delivery alliance, and even his latest offerings like his sub-$50,000 prefabricated homes. (With the exception of packaged foods with long shelf lives, I hope Amazon will get out of the grocery business, which is notoriously low-margin.)

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Despite the high multiples, expected levels, and Friday’s crash, 39 of the 51 still prefer AMZN, with a median price target of $140, up 35% from Friday’s close. SA quants and authors are particularly reluctant to hold stocks as ‘holds’ because of their valuations.

Risk/reward

As for risks, the obvious ones are the macroeconomic, the recession. On the one hand, given the GDP and PCE numbers released last week, we tend to think the threat has peaked. Meanwhile, the very low unemployment rate suggests the Fed could rise another 75 basis points overnight. Whatever happens will affect all of the competitors in this article, but is unlikely to change the reality/tendency of the comparison.

At a micro level, we want Amazon to operate with more liquidity. Yes, the company has a lot of cash, but in reality its working capital (current assets minus similar liabilities) is negative $9 billion for a current ratio of 0.94. That said, the company restocks inventory about eight times a year, or every 45 days. There is some evidence that Amazon is putting pressure on its suppliers, but of course, the alternative is to reorganize its distribution through fewer portals, something most suppliers probably want to avoid.

No, for us the reward is more than offsetting the risk. The main reason, again, is that Amazon is a market share machineIMO, the comparative/competitive analysis here is more applicable than the other approaches. Please discuss with me.