Plenty of column inches have been devoted to Amazon’s acquisitions, business practices and those headline-making profits over the last few years, but there is also plenty of speculation about what comes next, how the company continues to evolve and remain a growth phenomenon.
The good news for those who like to speculate on Amazon’s continued growth is that the company is methodical in its acquisitions, spreading out roots and branches to support its core businesses. It was something of a running joke that at one stage General Electric’s diverse portfolio saw the company sell lightbulbs and make television shows, whereas doing both is a natural fit for Amazon.
The tactic of acquiring start ups that complement its existing business has proved to be a fruitful one for Amazon. In 2018, net sales of $232 billion represented a 30% increase from 2017, a staggering growth statistic for a company of its size. Walmart, by comparison, saw sales rise by 3%, Apple by 6.3%.
Not everything has a juggernaut-like trajectory, of course. The partnership with Whole Foods, which was known as Project Athena, has proven to be difficult, a sense that there is not yet a blueprint for what Amazon expects its groceries business to look like five years from now. Certainly, we can see some evolution to our expectations from grocery shopping. For example, Amazon Prime members can get special discounts at Whole Foods. But there is not yet that sense of digital disruption that was expected when the $13.4 billion acquisition was agreed in 2017.
Online grocery shopping isn’t new
Indeed, there is a constant questioning over Amazon’s ability to attract grocery shoppers online. It’s not an Amazon-specific problem, nor is online grocery shopping particularly new. Peapod, an online grocery company based in Chicago, has been offering the service for almost 30 years.
However, such has been Amazon’s relentless growth and Midas touch when it comes to pretty much everything, most observers expected an explosion of growth in online grocery shopping. As it stands, Deutsche Bank Securities reports that online accounts for just 3% of all grocery sales in the US. The figure sits at 22% for clothes and 30% for electronics.
All of this, however, will probably be greeted with a shrug by Jeff Bezos and Amazon’s board. The truth is we do not know Amazon’s plans for the future of grocery shopping, nor should we be in any doubt that Amazon will one day truly challenge Walmart at the pinnacle of that sector. While the online grocery sales figures are low in the US, they are estimated to be around 7.5% in the UK and Japan, and a staggering 20% in South Korea. It is, therefore, abundantly clear there is room for growth online in the US and elsewhere.
Possibility of share price rising
As the company enters its 25th year in business, things look pretty rosy all round. If you buy Amazon shares today, you would do so with the confidence that it’s a sound investment. Despite the company’s size and diversity of assets, there is no sense that it is spinning too many plates. Indeed, the share price today is approximately double what it was two years ago, and more than four times what it was in April 2015.
The other intriguing sector that seems ripe for Amazon to disrupt is healthcare, especially in the huge US market. A significant foray into the area occurred in 2018 with the acquisition of PillPack, a pharmaceutical start up that provides prescription drugs in pre-packaged doses. The move caused such a stir, even though it was a relatively small purchase, that it meant traditional pharmaceutical businesses, like CVS and Walgreens, lost a combined $11 billion from their value.
Total healthcare expenditure in the US was estimated at just under $3.5 trillion in 2017, so it’s obviously a potentially lucrative sector for Amazon to enter. There is still a lot of speculation over what Amazon’s final plan will be, but the possibilities with Amazon’s distribution capabilities and its virtual assistant, Alexa, seem endless. The announcement that Amazon would be partnering with J.P Morgan and Berkshire Hathaway to address healthcare costs for employees also looks like a significant one.
As we have seen, there are still some dominoes to fall when it comes to Amazon’s future in online groceries and healthcare. Yet, one feels that flourishing in these sectors would simply be a bonus, rather than a necessity for Amazon. It’s worth remembering that AWS (Amazon Web Services) is judged to account for 40% of the company’s total value (estimates from Trifel), mostly due to the fact it’s a high-margin arm of the business. That keeps the stock up, but also serves as a reminder that Amazon’s core operations are very strong. If it takes a sledgehammer to healthcare and groceries, then that’s just the cherry on top for its shareholders and investors.