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The Ratings Game: Amazon sales are soaring but Whole Foods is a weak link

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Amazon.com Inc. has come off of a pandemic year that drove soaring profit and sales, but GlobalData Managing Director Neil Saunders says consumer willingness to spend money with Amazon doesn’t translate to zeal for the shopping experience.

“[A]s great as it is at functional factors such as convenience, operational prowess, technological innovation and so forth, it lacks something of a soul when it comes to creating inspiration and excitement,” Saunders said in a note following the e-commerce giant’s blockbuster first-quarter earnings report.

“This especially applies to physical spaces but is also evident in the very functional nature of its website and its difficulty in gaining traction in some sectors like luxury fashion.”

Read: Amazon’s pandemic profits top previous 3 years of earnings

Saunders calls “”physical retail” and, more specifically, Whole Foods, Amazon’s “weak spot.”

First-quarter sales at physical stores fell 16% year-over-year to $3.92 billion.

Certainly, with Amazon
AMZN,
+0.42%

posting numbers like $26.9 billion in net income for the 12 months ending March 31 and first-quarter online sales growth of 44% to $52.90 billion, the company has other strengths.

“However, that weakness is one of the big opportunities for other retailers and, as a retailer like Target shows, focusing on things that Amazon isn’t so good at is a recipe for considerable success,” Saunders said.

GlobalData highlights the omnichannel advancements other retailers like Target Corp.
TGT,
+0.20%
,
Walmart Inc.
WMT,
+0.06%

and Costco Wholesale Corp.
COST,
-0.06%

have made, starting before COVID-19, which turned vast fleets of brick-and-mortar locations into tremendous assets, with customers taking advantage of services like in-store pickup and speedy delivery from stores.

Still, analysts agree that Amazon is the frontrunner in the e-commerce race. The latest eMarketer data shows Amazon “dominates” U.S. e-commerce, forecasting sales growth of 15.3% this year to $367.19 billion.

Walmart comes in at number two, with U.S. e-commerce sales expected to climb 21.2% to $64.62 billion.

Also: Amazon becomes the top clothing retailer in the U.S., outselling Walmart, Target, Gap and others

Amazon is also reaping the online shopping benefits of its Prime program.

“Core growth drivers were consistent with recent quarters, as e-commerce momentum was fueled by newer categories like grocery and by 200 million Prime members ordering more frequently and engaging with benefits more fully, including 70% year-over-year growth in Prime Video hours streamed,” wrote Canaccord Genuity Capital Markets analysts in a note.

Canaccord rates Amazon stock a buy and raised its stock price target to $4,400 from $4,100.

During the call, Brian Olsavsky, Amazon’s chief financial officer, said the annual Prime Day extravaganza would be coming soon.

“We are excited to announce that we will hold a two-day savings event during the second quarter,” he said, according to a FactSet transcript. While media reports say the event will take place in June, Olsavsky said more about Prime Day 2021, including dates, would be revealed “a bit later this quarter.”

Prime Day took place in the fourth-quarter last year due to the pandemic. Olsavsky notes that July is a “big vacation month” in some areas, and the company is experimenting to find the best timing.

MarketWatch has reached out to Amazon reps for further detail and will provide an update when one is available.

And: Walmart invests in San Francisco-based autonomous vehicle company, Cruise

In addition to e-commerce and Prime, Amazon also has the strength of its AWS, and other businesses to propel its growth.

AWS sales grew 32% to $13.50 billion.

“We believe strong growth in Prime members (which now exceed 200 million), diversification across categories and geographies, and strength in AWS and marketing will support growth against challenging retail compares,” wrote Stifel analysts in a note.

“We view Amazon as a core holding given the company’s leading positions in cloud and e-commerce, with an accelerating advertising business that is expanding
consolidated margins.”

Stifel rates Amazon stock buy with a $4,400 price target, up from $4,100.

Truist Securities notes that both AWS and Amazon’s advertising revenue accelerated during the quarter. And even if Whole Foods is being pressured by COVID, grocery still has potential.

“Grocery continues to be an important growth area for the company as it experiments with multiple digital formats beyond Whole Foods, with several additional Fresh stores set to open in the US this year,” analysts wrote.

Truist rates Amazon stock buy with a $4,000 price target, up from $3,750.

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“It can be reasonably argued that Amazon has benefited from the global pandemic more than any other company in the world,” wrote Wedbush analysts.

“With over 60% of America’s population hooked as paid Prime members and with the company’s uncanny ability to identify and expand within accretive market verticals, we do not see a near-term slowdown in Amazon’s future. If anything, we are confident that its ability to revolutionize the way customers shop, store data, and form other new habits poses enough value to lift its share price for years
to come.”

Wedbush rates Amazon stock outperform with a $4,300 price target, up from $4,000.

Amazon stock has gained 7.7% for the year to date while the S&P 500 index
SPX,
-0.71%

is up 11.4% for the period.

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