Heard on the Street: Wall Street loves Amazon like no other company. But with challenges piling up, the internet juggernaut might have trouble repaying that affection.
By Justin Lahart Aug. 30, 2019 5:33 am ET Wall Street loves Amazon.com like no other company. But with challenges piling up, the internet juggernaut might have trouble repaying all that affection. FactSet lists 42 equity analysts with ratings on Amazon, and every single one of them has some version of a buy on its stock.
Only two other companies in the S&P 500 are more highly rated. Short interest—bearish bets against Amazon shares—has plummeted, and very few companies are as lightly shorted as it is now. And Amazon is, as it always has been, a richly valued stock. It trades at 58 times expected earnings over the next year compared with the S&P 500’s 17. And, amazingly, it also trades at 36 times all the money it has ever earned in its 22 years as a public company. It isn’t hard to see why everybody is so excited. From Amazon’s early days as an internet bookseller, its sales have grown by leaps and bounds as it upended traditional retailing and, more recently, became the dominant player in the cloud computing business. Since Amazon went public in 1997 its stock has climbed about 126,000%, making it the third most valuable company in the U.S. and its founder, Jeff Bezos, the richest person in the world. But the optimism suggests that a lot of good news is already priced into the company’s stock and that it might not take much in the way of bad news to disappoint investors. At a time when the company is facing slower sales growth, heightened competition, worries over the safety and authenticity of products sold through its website and the prospect of increased regulatory scrutiny, such a moment could be coming. Amazon’s retail business has been slowing. Its own sales online and those made by the millions of third-party sellers that list items on its site were up 14.5% in the first half of this year from a year earlier. Over the same period in 2018, they were up 21.8%. That slowdown is partly a result of just how large Amazon has become. With an estimated $121 billion in domestic retail sales last year, it is now America’s second-largest retailer behind Walmart , according to Kantar. But Amazon’s forays into new areas, such as its acquisition of Whole Foods Market and online pharmacy PillPack, may be a response to reduced growth opportunities in its older businesses. There is also more competition for online sales than in the past, with those of many retailers growing faster than Amazon’s. Through the first half of its current fiscal year, Walmart’s U.S. e-commerce sales were up 37% from a year earlier, while Best Buy ’s were up 16% and Home Depot ’s were up 21.4%. None of those retailers’ online sales approach Amazon’s, but they have become substantial enough that their rapid growth shouldn’t be considered an afterthought. Share Your Thoughts Where do you see Amazon’s shares heading in the near future? Join the conversation below. Worries over the safety and authenticity of items sold by third-party sellers on Amazon could send more customers to competitors’ online offerings. A recent Wall Street Journal investigation found 4,152 items for sale through Amazon that had been declared unsafe by federal agencies, were deceptively labeled or are banned by federal regulators. Counterfeit products, which Amazon has struggled for years to eliminate, are another sore spot. Amazon’s industry-leading cloud computing division, Amazon Web Services, represents its greatest growth opportunity. But, unlike Amazon in its early days selling goods online, AWS faces substantial competition from two technology juggernauts in their own right— Microsoft and Google parent Alphabet. The news earlier this summer that a former AWS employee accessed the personal information of approximately 106 million Capital One Financial credit-card customers and applicants stored on AWS’s cloud could pose a further challenge. It is the first high-profile hack involving a prominent public cloud service, so it remains to be seen what impact that might have on AWS’s competitive position. Last but not least, Amazon has also become so large that it, along with Facebook , Alphabet and Amazon, is increasingly at risk of finding itself in regulators’ crosshairs. Democratic presidential candidate Elizabeth Warren, among others, has said it should be broken up. Federal regulators are readying possible antitrust probes of Amazon, and the House Judiciary Committee has made public its investigation into competition in digital markets. A group of states is preparing to move forward with a joint antitrust investigation of big technology companies that will likely include Amazon. For now, there can be little doubt that Amazon’s business will keep getting bigger. For it to match investors’ heady expectations, though, a lot may have to go right for the company over the next couple of years. Yet so much could go wrong.Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
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