By Joyce Yu
Philadelphia, PA–Amazon’s stock stood out among its peers during the first two months of 2018 when the broader market is about flat after wide ups and downs. Not satisfied with being just tech company, Amazon has aggressively expanded its business into other sectors, but industry watchers think Amazon is unable to dominate the globe.
Part of Amazon’s recent actions are last year’s acquisition of grocery store Whole Foods, a profitable cloud computing business and expansions into physical assets with bookstores and a new automated convenience store. Earlier this month, it also announced a partnership with Warren Buffett and Jaime Dimon on a venture to offer cost competitive health care products for their staff, and last week it was revealed that the company had partnered with Bank of America to provide loans for merchants.
Observers, on the other hand, said there are limits for Amazon in taking over everything. Daniel Lacalle, chief economist at Tressis Gestion, told CNBC, “I think that Amazon is also delivering, but what you cannot expect is this sort of global takeover, that Amazon will destroy every single sector because people are getting smart and I think that that is a positive.”
Amazon’s rapid growth posts threat to traditional retailers like Walmart which reported on Tuesday declining gross margins in the fourth quarter, quoting competition from Amazon as part of the reasons for the drop. Target CEO Brian Cornell, however, holds different opinion and still sees stores playing an important role in a retailer’s overall strategy.
“The winning retailers of the future are going to combine great physical assets with the ease that comes along with that digital interaction,” Cornell said on “Squawk Box.” “For the foreseeable future, the majority of U.S. retail sales will still take place at stores.” Data released last month by One Click Retail confirmed Cornell’s view: Amazon took up 44% of all U.S. online retail sales in 2017 — and only 4% of America’s total retail sales.
Breaching the $1,000 mark just last May, Amazon’s stock soared 73% in 2017. With a market value of 718 billion, Amazon recently surpassed Microsoft, and ranked behind only Apple and Google. That helped its CEO Jeff Bezos become the world’s richest person with his wealth surpassing $100 billion in November.
The company continues to report better-than-expected results in Q4 with a profit of nearly $2 billion, the largest in its history. But its stocks are no longer a bargain to investors though, commanding a high price-to-earnings ratio of 323. This compares with the average price-to-earnings ratio of 22 for the S&P 500.