How A Happy Holiday Season Can Impact Amazon’s Valuation?

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AMZN: Amazon logo
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A survey by Reuters conducted between November 12 and November 18 revealed that 51% of 3,426 adults surveyed are planning to do most of their online holiday shopping this season at Amazon (NASDAQ:AMZN) compared to 16% at Walmart. Although the survey size is a very small sample of Amazon’s shoppers, it shows the company’s popularity and ability to grab a higher market share through various deals and incentives. While traditional retailers such as Walmart and Target have a dual challenge of competing in the online market and attracting consumers to their stores, Amazon’s efforts are totally focused on e-commerce. Its stock price jumped more than 4% in the last week, and a 200 basis points increase in the U.S. EGM (electronics and general merchandize) market share can lead to nearly 4% increase in our price estimate.

Attracting Prime Memberships Through Deal Advantages Can Increase Market Share

Amazon slashed its Prime membership subscription charges in the U.S. for a single day on Sep 22, 2015. [1] and  it dropped is membership rates by £20 in the U.K. ahead of the Black Friday sales.((telegraph.co.uk)) Prime members will also get access to the Black Friday deals almost thirty minutes before guest customers. [2] Amazon plans to announce the launch of one new deal every five minutes as opposed to ten minutes last year. A new feature called “Watch A Deal” has been added which allows shoppers to pick the deals they are interested in and receive a notification on their mobile device once the deal is live. In addition to expanding its same day delivery territories, Amazon is offering one hour delivery to its Prime now customers. [3] Traditional retailers such as Walmart and Target might find it difficult to compete with both these offers and their convenience to customers. As a result, these initiatives should drive memberships and increase Amazon’s market share.

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We expect Amazon’s market share in the General Merchandise category to increase from approximately 14% in 2015 to around 20% the end of our forecast period. A 200 basis points increase in this figure where the market share increases to nearly 22% at the end of our forecast period can lead to 4% upside to our price estimate.

As Amazon introduces new initiatives this holiday season, it could attract more memberships and increase revenues, further threatening traditional brick and mortar retailers.

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Notes:
  1. cnet.com []
  2. techcrunch.com []
  3. Amazon website []