Why In­dia will be such a big boost for Ama­zon

Financial Mirror (Cyprus) - - FRONT PAGE -

If there is one com­pany that the mil­len­ni­als and growth in­vestors alike both love dearly, Ama­zon.com Inc. (NAS­DAQ: AMZN) would be at the top of the list. Jeff Be­zos has been able to de­liver mas­sive growth and take on many in­dus­tries, and he’s been able to do it with­out ever promis­ing Wall Street an­a­lysts that the com­pany would gen­er­ate mas­sive prof­its in the near-term. In­ter­na­tional mar­kets can be chal­leng­ing for for­eign com­pa­nies, but there is a fresh view out from Mer­rill Lynch that Ama­zon is gain­ing a stronger and larger foothold in In­dia. The firm’s Justin Post has been ex­am­in­ing Ama­zon’s big­gest new op­por­tu­ni­ties over the next 5 to 10 years. Af­ter not­ing how on­line gro­ceries could be a hit, Post also points out that Ama­zon’s op­por­tu­nity ahead in In­dia could get more vis­i­bil­ity with in­vestors.

Post also wrote some of the op­por­tu­ni­ties in an overlap with the Mer­rill Lynch In­dia In­ter­net team. As far as what to ex­pect from Ama­zon’s in­vest­ment in In­dia, the re­port said: “In­dia is a po­ten­tially large eCom­merce op­por­tu­nity where com­pet­i­tive dy­nam­ics and mar­ket share is still in flux. Ama­zon has sug­gested that In­dia could be­come its se­cond largest mar­ket and plans to in­vest $5 bil­lion in its In­dia busi­ness. While there is no stated time­frame for the spend, the in­vest­ment un­der­scores the im­por­tance of In­dia for Ama­zon. In­dia rev­enue is small to­day, but the in­vest­ment is fi­nan­cially rel­e­vant as the Ama­zon could be los­ing $500 mil­lion to $1 bil­lion a year. Longer-term, by 2025 (we) es­ti­mate Ama­zon In­dia could gen­er­ate $81 vol­ume in gross mer­chan­dize vol­ume (~20% of to­tal in­ter­na­tional gross mer­chan­dize vol­ume) and $2.2 bil­lion in op­er­at­ing profit.”

The Mer­rill Lynch re­port also pointed out that the share has been shift­ing in Ama­zon’s fa­vor. They see Flip­kart as hav­ing the largest mar­ket share in In­dia at 43%. On its heels, they see Ama­zon hav­ing 28% mar­ket share, fol­lowed by Snapdeal’s 12% mar­ket share. They said: “Ama­zon’s heavy in­vest­ment in In­dia and changes in reg­u­la­tions which may be im­pact­ing price competition have helped Ama­zon gain share in 2016. Some re­cent press re­ports in­di­cate that Ama­zon’s In­dia sales may have been greater than Flip­kart’s sales in July 2016 (ex-Myn­tra and Jabong M&A, Flip­kart still big­ger over­all). Look­ing for­ward, we as­sume Ama­zon’s m/s goes from 28% in 2016 to 38% in 2020.”

With this in mind, Ama­zon is con­sid­ered Mer­rill Lynch’s top 5-year In­ter­net mega cap stock pick. The firm does have a Buy rat­ing and $860.00 price ob­jec­tive — about $90.00 higher than the most re­cent clos­ing price.

Mer­rill lynch also points out that Google Inc. (NAS­DAQ: GOOGL) and Face­book Inc. (NAS­DAQ: FB) con­tinue to de­liver im­pres­sive re­sults, Ama­zon’s eCom­merce cat­e­gory is still ear­li­est in its pen­e­tra­tion curve. Mer­rill Lynch also sees Ama­zon gain­ing more share in the cat­e­gory than any of its peers — 60% of eCom­merce sales in 2016.

Ad­di­tional growth driv­ers for Ama­zon were counted as B2B, SaaS, gro­ceries, lo­gis­tics, In­dia and au­tos. Mer­rill lynch’s in­vest­ment ra­tio­nale in­cluded the fol­low­ing pos­i­tive note: “We think Ama­zon’s fo­cus on the cus­tomers and the buyer ex­pe­ri­ence is right for the In­ter­net, and we con­sider Ama­zon a trans­for­ma­tional com­pany. We think Ama­zon is well po­si­tioned to cap­i­tal­ize on the global growth of eCom­merce and other sec­u­lar trends such as cloud com­put­ing, on­line ad­ver­tis­ing, con­nected de­vices, and mo­bile com­merce.”

Ama­zon.com shares were last seen trad­ing down 1.4% at $760.86, or -1.4%. Its 52-week range is $474.00 to $790.79 and its con­sen­sus an­a­lyst price tar­get is $870.33.

24/7 Wall St. tracks the CIA World Fact­book for its key eco­nomic and de­mo­graphic data. That shows In­dia ranked se­cond in pop­u­la­tion with 1.251 bil­lion peo­ple (July, 2015). It also tracks In­dia’s 2015 GDP as be­ing $7.965 tril­lion on a pur­chas­ing power par­ity ba­sis, which ranks it as be­ing the fourth largest GDP glob­ally of any in­di­vid­ual na­tion. Grab­bing mar­ket share there would seem to bring lots of op­por­tu­nity, par­tic­u­larly of that GDP per capita can in­crease. They also pointed out GDP growth of 7.3% in 2015, 7.2% in 2014, and 6.6% in 2013.

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