What to Expect from Amazon Stock Now
Welcome to Amazon.com, Inc. (NASDAQ:AMZN), your store for everything. Perhaps that is overly dramatic, but not by much. Amazon’s decision to buy Whole Foods Market, Inc. (NASDAQ:WFM) is one of those events that will be written about in business textbooks for years and years to come. My guess is that it will set AMZN stock on the path to $2,000.
More importantly, the alliance of Amazon and Whole Foods is sure to revamp our grocery experience. We should expect drone deliveries, pick-up stations, shorter checkout lines, personalized sales promotions, and who-knows-what-else.
In previous reports, I have estimated that AMZN stock can reach $2,000 by 2020. Not only does this acquisition increase my level of confidence, but I’m starting to wonder if I was too conservative…I’ve never seen an acquisition this perfect.
But before we get into the details of how it dovetails with Amazon’s “Everything Store” endgame, here are five reasons why this acquisition makes sense.
1. Rich People Live Near Whole Foods
Of the U.S. households that bring in $100,000 per year or more, one-third live within three miles of a Whole Foods. That is not a coincidence, nor is it something that slipped Amazon’s notice. It knows those people like to shop on Amazon.com as well.
2. Young People Live Near Whole Foods
The customer profile at Whole Foods tilts young, towards Millennials and Gen Xers. These demographics place a premium on comfort and convenience, while also maintaining a strong digital profile for Amazon to study. It is the sweet spot.
3. Americans Are Used to Online Grocery Shopping
According to Nielson (NYSE:NLSN) and the Food Marketing Institute (FMI), 23% of U.S. households buy some of their groceries online. As a percentage of total volume, it isn’t anything to write home about, but it’s still early days. Online purchases are expected to account for one-fifth of all purchases by 2025. (Source: “FMI and Nielsen Release First Set of Findings on the Digitally Engaged Food Shopper,” Nielson, January 30, 2017.)
4. Amazon Dominates the Rest of Online Shopping
It’s scary to think consider that 43% of all e-commerce sales come from Amazon. Dominance like that usually borders on monopolistic, but can you monopolize a completely free and open marketplace? It should be impossible, right? Yet Amazon accounts for almost half of online sales. It boggles the mind.
5. AmazonFresh Was Not Working
This deal came out of the blue, but it wasn’t a surprise. Amazon has been trying to conquer the grocery market for some time now. It even launched “AmazonFresh,” a pilot program for delivering groceries, but it failed to catch on.
Customers didn’t fall in love with AmazonFresh because it wasn’t partnering with local grocery stores, unlike Instacart, which made sure to forge connections.
Now that Amazon has 430 physical locations, it can finally pair its delivery system with a successful grocery store.
AMZN Stock: The Long Game
WFM stock got a huge boost after the deal was announced. Investors could have made a rapid 30% return if they owned the stock, but that will probably look like peanuts compared to Amazon’s future gains.
What with drones deliveries and self-checkout machines, the industry could become a battleground for data savvy companies. And let’s not forget that Amazon is a technology company first and foremost.
Who else but Amazon should profit from the invasion of technology into the grocery industry?
Wal-Mart Stores Inc (NYSE:WMT) is no slouch in this department, but let’s be clear: It doesn’t stand a chance against Amazon if data is the weapon of choice.
Nevertheless, Amazon is learning that digital only take you so far. In buying a physical retailer, it has conceded that analog interactions are necessary to the consumer experience (at least in some respects). As such, we could see Amazon make use of the physical stores in unusual ways, such as hosting cooking lessons or wine bars. It’s always good practice to expect the unexpected from Amazon.
In the end, however, I believe Amazon’s most potent advantage will come from its “Prime” membership. The premium pass to all things Amazon includes a “Netflix”-style streaming service, free deliveries, and a music service. Imagine if grocery deliveries and/or savings were added on top? It would become more irresistible than ever.
Prime is the secret to Amazon’s long-term goal: The Everything Store.
CEO Jeff Bezos has made it clear that is his one, true ambition. He wants Amazon to be a place where anyone can buy anything they want as fast as they want.
Investors continually underestimate the potential of this business model, because we’ve never seen anything like it before. Amazon is breaking new ground here, which makes it incredibly hard to value.
However, I have no trouble seeing the stock double to $2,000. I was already expecting that level of growth from cloud computing, Prime, and online shopping trends—the Whole Foods acquisition only reaffirms my faith that AMZN stock will get there.