Is increasing & fierce competition a reason to be a bear?
So far we know that global expansion and investments in new segments, from Amazon Kindle to server farms, are driving expectations up. But how about increasing competition, coming both from traditional retail competitors (like Wal-Mart and its recent attempt to conquer the online e-commerce arena, also known as walmart.com) and e-commerce & auction marketplaces like eBay Inc (NASDAQ:EBAY)? Can they ruin the party?
In theory, they can. The internet belongs to nobody and changes rapidly. Although it is catching-up quite late, Wal-Mart is a formidable competitor. It is creating a huge new logistics system, building new warehouses for web orders all over America. Even better, it is taking advantage of its more than 4,000 U.S. physical stores: it is asking its workers in stores to pack and mail items to customers directly, and it could improve the speed in delivery.
eBay Inc (NASDAQ:EBAY), on the other hand, has presence in more than 40 countries outside the U.S., and international revenue already accounts for 52% of revenue. Some of these markets still have a low e-commerce penetration rate, and this is likely to change in the next few years. Considering eBay Inc (NASDAQ:EBAY) was an early mover in these emerging markets, it could have more competitive advantages than Amazon. And don’t forget, eBay, like Amazon.com, Inc. (NASDAQ:AMZN), is not only about retail. Now accepted by most online retailers, eBay’s Paypal platform for online payments is a consolidated safe cash cow.
Luckily for its shareholders, Amazon does have competitive advantages. Unlike Wal-Mart, Amazon benefits from low-cost operations, since it doesn’t need to maintain a large physical retail presence. And surely it has more e-commerce know-how: it has managed to build a strong online brand, and it is not so dependent on traffic coming from search engines, unlike most new e-commerce sites.
Also, not everybody is interested in auctions. Buying from Amazon sometimes can be much more simpler and faster than bidding in eBay. But I believe there is enough room for two giants to coexist in the e-commerce arena.
The bottom line
With more than $50 billion in annual sales, Amazon.com, Inc. (NASDAQ:AMZN) is still regarded by investors as a growth stock. This may be hard to believe, considering its e-commerce site has been around for more than 10 years. But recent investments in new segments, and global expansion could take revenue to new records. That’s why investors pay a premium now and are not afraid of seeing some losses in the short run. It’s not time to be a bear. It’s time to be patient.
The article Why Amazon Was Not Punished by the Market originally appeared on Fool.com and is written by Adrian Campos.
Adrian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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