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Demise of Amazon: D.A. Davidson outlines risks



Amazon CEO Jeff Bezos announces Blue Moon, a moon watercraft to the moon, during a Blue Origin event in Washington, DC, May 9, 2019.

Saul Loeb | AFP | Getty Images

Wall Street loves Amazon and investors have plunged their stock up another 20% this year.

But one of its most bullish candidates warns that there are several threatening risk factors facing the company now.

D. A. Davidson's Tom Forte, which has one of the highest target prices for Amazon at $ 2,550 per. Stock, according to FactSet, wrote in a note published on Thursday that he closely monitors four warning signs that could potentially result in "the Amazon's death". [1

9659002] While Forte repeated a "buy" rating for Amazon and kept its price target unchanged, he wrote that the following four risk factors could adversely affect Amazon's future performance:

  • Law of large numbers: Amazon has become so big that It would be harder to impress investors with rapid growth rates. For example, Amazon needs a huge $ 2.3 billion extra sales just to generate 1% growth based on last year's total $ 232 billion revenue, Forte noted. As a result, Forte expects Amazon sales to grow with a compound growth of 15.5%, lower than the previous three-year 29.6% compound growth rate.
  • Succession: What happens when Amazon CEO Jeff Bezos decides to step down? This can lead to "significant success risk" for Forte notes, as the move to the next CEO could lower overall business. At the same time, Forte notes that Amazon is well prepared for the change, with a deep bench of leaders who could potentially take the helm when Bezos leaves. Bezos, now 55, has not said much about his succession plan. For reference, Bill Gates was 45 when he left his position as Microsoft CEO, while Starbucks & # 39; Howard Schultz & Walmart & # 39; s Sam Walton both had much longer career.
  • Competition: Amazon will face aggravating competition in its central e-commerce space, as most of the weaker players have already disappeared. This means that Amazon has to enter new large markets where there is more competition, says Forte. Two of the most challenging areas for Amazon ahead are clothing and groceries, Forte notes, as the company has struggled to see much growth in both areas. He believes that Amazon needs more than just advanced technology to win categories such as women's fashion, while noting the entire purchase of whole foods has not really moved the needle into winning share in the grocery category.
  • Regulation: Forte notes that the US government could "stop Amazon in its tracks" if it goes up with antitrust or other regulatory control of the company. While Amazon's low price range could make an antitrust case challenging to pursue, Forte says its massive market power could push further regulatory pressure both in the United States and abroad. He wrote the potential for antitrust and global regulation could "negatively impact Amazon's operating performance and stunt its future growth."

Forte concludes that he still believes in the company, but keeps an eye on warning signs.

"As much as we keep the founder, chairman, chief executive, and president Jeff Bezos in the highest regard and as we are optimistic about the company's ability to maintain increased growth by further penetrating existing markets and entering new Therefore, a premium multiple in the coming years, we closely monitor the company and stock for warning signs that may result in AMZN's death. "

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