Amazon Strikes Again, Rival Stocks Tumble

Amazon.com, Inc (NASDAQ:AMZN) struck another partnership which sent the shares of rivals like Home Depot tumbling down.

It has been a busy month for eCommerce giant Amazon.com Inc (NASDAQ:AMZN).  The company just concluded its third Prime Day event which saw record breaking sales. Close on the heels of its Prime Day sales success, Amazon announced the launch of “Spark”, a social network feature which encourages users to share photos and videos, just like popular social media platforms Instagram and Pinterest. Amazon has also invited publishers including paid influencers and bloggers to post on Spark. Their posts are identified with a sponsored hashtag. The company has also struck several partnerships which have left the shares of its rivals in the retailbadly bruised.

Amazon.com Inc strikes a new partnership.

Yesterday, the Seattle based giant struck another major partnership. According to an announcement by Sears (NASDAQ:SHLD), the company will start selling its Kenmore appliances on Amazon. The deal will give Kenmore brands greater visibility and boost its sales, at the same time it will loosen Sears grip on the historic product line. As expected, the shares of Sear’s rallied, as much as 20% intraday before closing the day at $10.6, up 10% from Wednesday. And as has been the case earlier, the shares of rival companies which have been chipping away market share of Kenmore appliances tumbled. Shares of Home Depot was down over 4%, Best Buy tumbled 3.93% and Lowes stock tumbled over 5.5%. Earlier, Amazon had announced a similar partnership with one of the biggest sporting brands, Nike (NYSE:NKE). The reaction of the market was similar. Nike stock had rallied, while shares of athletic goods retailers such as Dicks Sporting Goods and Foot Locker had tumbled over 6%.

This has become a routine of sorts. Whenever Amazon.com Inc makes any move into another business, shares of the incumbent companies take a hit. We have seen this recently with Blue Apron. Shares of the meal kit maker had tumbled 10% after it was revealed that Amazon has filed for a copy right of the tag line “We do the prep. You be the chef.”. Earlier, Blue Apron’s IPO has come under pressure after Amazon had announced the acquisition of Whole Foods. The company had to cut its IPO range to $10-$11, from $15-$17 a share. Blue Apron shares are now trading at $6.52. Some $32 billion market value was vaporized after Amazon’s move to buy Whole Foods.

Amazon has strong execution capabilities.

Given its track record of disrupting businesses, it no surprise that investors believe the eCommerce giant can take significant market share away from incumbent companies. It is a testament to Amazon’s execution capabilities that the company could be in as diverse businesses as grocery and cloud computing and there are no red flags raised by the Wall Street or investors. It also helps that the company has deep pockets and unfettered access to capital markets. There are several companies which are being threatened by Amazon. Bespoke Investment Group maintains a so-called “Death By Amazon Index” which tracks the share performance of 54 companies which the firm believes are being threatened by Amazon. The index keeps hitting new low every other day.

Amazon is looking to win the smart home revolution.

Sears has been one of the companies affected by Amazon. Its revenues have declined from $39.8 billion in 2013 to $22.14 billion in 2016. The deal with Amazon will check the continuous decline in its revenue. Selling Kenmore outside its own stores or websites could give it a boost in sales. On the flip side though, it also gives customers one less reason to visit a Sears stores.

Kenmore will be Amazon’s first retail offering in major appliances segment. Kenmore appliances will come with Amazon’s AI assistant Alexa already installed in them. This will make operating these appliances easier. For a while now Amazon has been making a strong push for Alexa integrated devices. The company is aiming to win the smart home revolution by locking in as many homes as possible inside its Alexa ecosystem. To make installing Alexa as easy as possible, the company has been hiring an army of tech experts who can visit your house and give you free Alexa consultation as well as product installation.

In spite of its huge diversification and scale, the eCommerce giant has been able to deliver strong growth quarter after quarter. And analysts expect Amazon to continue growing at a rapid pace for coming few years. Amazon.com Inc is expected to double its profits by 2018 and report around 4 times 2016 profits by 2019. Given the strong growth expectations, analysts remain bullish on the stock. Morgan Stanley Analyst Brian Nowak raised his price target on Amazon stock from $975 to $1,200. Amazon stock still remains a good long term buy.

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