4 risks that could see Amazon fall
Tom Forte, an equity analyst at D.A. Davidson, has one of the highest target prices for Amazon at $2,550 per share. He has long recommended investment in the e-commerce giant for the long term. However, recently he wrote about four risk factors which could lead to Amazon’s downfall:
1. Law of large numbers
The bigger Amazon becomes, the lesser it grows, making it harder to impress investors. To illustrate, Amazon’s 2018 revenue was $232 billion, as per which it would need to bring in additional sales of $2.3 billion to generate just 1% in growth. When year-on-year growth in compounded, Amazon’s growth rate is still down compared to the last three years.
Jeff Bezos is 55 years old. While he has no imminent plans of stepping down, he will at some point, which could lead to a significant succession risk. Although, Amazon seems to be well-prepared for the change with a deep bench of executives who could potentially rise to the helm.
Amazon has pushed the smaller e-commerce players are out of the game, leaving bigwigs like AliExpress. Hence in order to sustain growth rate, Amazon will have to enter new and large markets, and fight the competition. It needs to conquer apparel and grocery, which are two massive segments for growth. Amazon has already entered both races, with the acquisition of Whole Foods (hasn’t seen much success) and recently, investment in Deliveroo.
Governments are becoming serious about breaking up big tech firms on antitrust and competition-stifling issues. Depending on how that plays out, Amazon could face intense regulatory pressure, affecting its growth and profits.
Tom Forte is closely tracking these four factors for warning signs: law of large numbers, succession plans, competition, and regulation.CNBC