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Amazon Is Well Positioned Despite Overwhelming Pressure from Competitors
Posted by: Muhammad Bazil (IP Logged)
Date: December 31, 2012 10:38AM
The once-steady tech industry has since transformed into a melting pot of fierce rivalry. Litigation has become commonplace and different competitors are going to extreme lengths to edge out their rivals and rake in colossal profits.
A demonstration of this sheer rivalry is the unjustified move taken by Target (TGT) and Wal-Mart (WMT) where the two retailers were noted to have boycotted the sale of Amazon (AMZN)'s Kindle before and during the Christmas holiday. The two, who were seemingly annoyed at Amazon for showing consumers the art of browsing in stores and buying online, boycotted the sale of the Kindle in favor of Barnes & Noble (BKS)'s Nook. This perhaps explains why promotions for the Nook at both Target and Wal-Mart are inexplicably high.
Although the Nook is yet to establish a solid footing relative to Amazon’s Kindle, it doesn’t pass by as an absent threat. Considering the hype that has shrouded Barnes & Noble in recent times, Amazon should be worried. Not only are Amazon’s fellow retailers disposed toward Barnes & Noble’s Nook but industry reports also suggest that the Nook is making significant inroads into Kindle’s e-reader market. As if to paint a darker shade of gloom, renowned hedge funder Whitney Tilson, who is synonymous with T2 Investments, bought into Barnes & Noble back in the third quarter. Tilson’s move inevitably suggests that Barnes & Noble is a value play. And indeed, some of the aspects in Barnes & Noble make it a good value play. Looking at its share price, cheap would be an understatement. The graph below elaborates that more clearly.
In addition to the price dipping over time, there have been promising sales reports which have been accompanied by great reviews from alternate sources. This combination is indicative of an undervalued stock and I believe that this factor may greatly affect the outlook on Amazon, considering it’s Barnes & Noble’s close competitor.
Some pundits are also bashing Amazon in light of the recurrent problem that it has had with its cloud computing service. In the most recent case, Amazon’s problematic service led to a blackout in Netflix (NFLX). Although the problem was resolved the same day it occurred, critics argue that Amazon merely gave a sketchy explanation. I concur with this argument. Why is this so? No official explanation regarding the problem has been issued so far. What’s even more is that similar events in the past have been addressed in the same fashion, suggesting that Amazon is typical of handling cloud-related issues loosely. I believe that Amazon needs to address this issue candidly and officially. Its relationship with Netflix seemingly appears to be on the rocks and it is the careless handling of issues like these that continue to compound the growing rift between the two.
While there happen to be a lot of negatives that are weighing in Amazon, I am confident about the positives. In fact, Amazon is well positioned relative to its competitors and could continue dominating the ecommerce industry.
The Positives Outweigh the Negatives
As far as tablets are concerned, Amazon could also get an opening, albeit small, into Apple’s (AAPL) turf. Of late, there has been a growing negative sentiment toward Apple. Tech savvy consumers are arguing that Apple’s overwhelming patents are a hindrance to innovation and as such, are leaning toward other products. What’s worse is the fact that various research firms are of the opinion that Apple’s addressable market is saturated. These factors, coupled with the thinning demand for the iPhone, have culminated to a trio of downgrades from different firms.
In addition, I believe that Amazon’s Kindle will widen its footprint in the potent Chinese market. My convictions stem from the fact that the ecommerce giant has already opened a Kindle store in the Asian country. While Chinese e-reader bigwigs like Hanwang Technology E-readers and Shanda Cloudary’s Bambook currently control the market, steady overseas orders for the Kindle signal growing demand. In fact, former Amazon China chief, in an earlier interview with Reuters, noted that Amazon was in talks with Chinese publishers regarding content deals. He also pinpointed that the Kindle was likely to launch within two years.
In conclusion, these factors spell a lot of hope for Amazon’s future and outweigh the pressure from competition. To sweeten the pot, a report by Foresee, a firm that measures customer satisfaction for different companies, shows that Amazon is the most satisfying website to shop in. The basis of rating is variety and site functionality. This is the eighth year in a row in which Amazon has clinched the top position and this will be instrumental in bolstering its top line and extension income.
Stocks Discussed: AMZN, WMT, TGT, BKS, AAPL,