Testing The Economic Moat of Amazon Stock

Testing The Economic Moat of Amazon is delivered under several situations
Measuring Strength of Amazon

How far does Amazon leave its competitor? Or, does it? Testing the economic moat of Amazon Stock will allow us to get a better understanding of the largest retailer’s competitive advantage.

For the sake of reader experience, in this post, we will first focus on Amazon retailer-related segment, before continuing to cloud and another segment.

In This Issue

Testing The Economic Moat of Amazon Stock by Looking at Its Facility.

Since the beginning, Jeff Bezos’s vision of a happy customer is built by precision services, fast, and no mistake. All of that is achieved by robots, automation, and algorithm. Even when still a bookseller, Bezos has realized his vision. Once, he replaced his book reviewer with software that could collect buying information and write reviews.

Walmart and eBay founder doesn’t have that vision.

Look at the Amazon fulfillment center in Kent and you will see how the reality of the entrepreneur vision of automation. This is a 15 football field-wide area where the manager sees nine big screens to monitor workers processing orders. This is the place behind what happens after customers click “buy” in the Amazon app or website.

Combining all Amazon facilities, The Seattle-based company could handle 1.6 million items a day. Nothing could match this gigantic scale – not even close.

Investor question

Ok, now, so what? What does it mean for investors? First, it fulfills online demand from customers. The US has more than 320 population, it is a giant market. With near-perfect execution on the dinosaur scale, Amazon could meet that demand, leaving no chance for competitors. Its facility creates such a high barrier to entry for rivals.

Walmart follows Amazon’s footprint to integrate its automated system into the existing warehouse. But to catch 1.6 million items a day is almost impossible.

Not stopping there, during the pandemic, Amazon acquired Zoox, a self-driving vehicle maker as a part of Amazon’s vision to become more and more automated. If Amazon could scale it up and fix some issues, it is not impossible that Bezos could eliminate the human element as much as possible.

Conclusion? In terms of scale for e-commerce, Amazon is unstoppable.

Machine Era
Testing The Economic Moat of Amazon Stock by Its Pricing Power.

Surprisingly, the sophisticated and highly automated Amazon facility doesn’t always allow Amazon to give a lower cost for customers. For some items, Amazon’s price is higher than competitors’. We conclude that it is because Amazon needs to spend sky-high expenses to take care of its facility – even with its cloud infrastructure.

Jeff could break this problem by introducing Amazon’s own product, so it will be cost-efficient. We have seen it, but still, it is far away to offset facility expenses with this method. Let alone about the antitrust issue, but, if Besoz makes it – it will be great for Amazon and shareholders.

Machine Era
So Does The Delivery

Fastest but not always. When comes to delivery time, having more branches could give more advantages. Since the goods could be delivered by facility or warehouse nearby the buyer. Still, Amazon really impresses us, for comparison – Walmart has more than 4700 stores while Amazon only has 110 facilities center. The automaton army allows Amazon to overcome the deficit in a number of branches.

A real headache for Walmart is if Amazon opens its own retailer.


Investor Point of View

Amazon will not kill Walmart due to its pricing strategy and fast delivery. Both will grow and prosper, Amazon in e-commerce and Walmart in-retailer. A real deal will happen if Amazon could expand its business into physical retail: Opening its own branch and selling its own product. It is more likely Amazon eats the physical retail business than Walmart eats the e-commerce. Walmart’s management could pray so that the federal government label Bezos with antitrust and anticompetitive.

Read also: https://investingdeck.com/management-analysis-of-amazon-acquisition/

The Prime
Testing The Economic Moat of Amazon Stock by Its Ecosystem

Labelling Amazon’s economic moat with economies of scale only is a blasphemy. We know it when breaking down its annual report, we find that the FAMAG((Facebook Apple Amazon Microsoft Google)) member revenue from the subscription segment grows almost four times during the 2015 to 2019 period. While competitor like Walmart tries to pursue Amazon’s footprint, the AWS maker has another weapon: prime subscription.

Walmart also copied this step by launching Walmart+, but, when comes to the ecosystem, prime is unrivaled – like its e-commerce. Amazon bundles Prime subscription with video streaming, e-book, massive discount, and another benefit. Walmart could replicate this strategy since it doesn’t have infrastructure at the Amazon level.

Amazon Growth Stock: Revenue by segment - all on fire
Amazon Revenue by Segment

Something in Amazon Forest
Robot Can’t Work Alone

Amazon seems to pass all of our tests: scale test, delivery time test, and price, also ecosystem test. We believe Amazon could retain its competitive advantage, especially in e-commerce along with its subscription business. But, to attack Walmart, we have doubt. Not because Amazon lacks resources or Bezos lost his touch, but because the federal government maybe doesn’t like it. The issue s clear for the facility: Underpaid, overworked employees. Here, people are monitored and get instruction from a set of algorithms and robots – it is easy for competitors to cook this issue.

The Need:
Testing The Economic Moat of Amazon Stock is Mandatory

This section should be in the first of this post.

How could you know a company has a long and durable competitive advantage? By letting the time flow and give the answer? It will. But you won’t quietly sit and do nothing. By making several case tests for economic moat durability under certain circumstances, the investor has a wider and deeper perspective. They are ready for making any decision.

For Amazon’s case, we will carefully watch e-commerce, subscription segment, and AWS development since Amazon really strong in those three. The rest? The rest is only potential – auto-delivery, pharma, selling its own product. And it is difficult. But we won’t close our minds here, anything could happen. We don’t know. If Jeff becomes President elected, then that antitrust issue could be resolved. Who knows? We are open to all possibilities. But right now, Just that three: AWS, e-commerce, and Prime.