The next Amazon stock; Watch out for these companies
Amazon(NASDAQ: AMZN) is the largest eCommerce company in the world. It is also the world’s largest online marketplace, AI assistant provider, live-streaming platform, and cloud computing platform as measured by revenue and market capitalization. It is the largest Internet company by revenue in the world, and it is the second-largest private employer in the United States.
Amazon ranks as one of the world’s top companies by market value. Amazon currently has a market cap of $1.7 trillion.
Started 20 years ago as an online bookstore, Amazon has managed to enter and dominate the e-commerce business. Jeff Bezos, CEO, and founder, who will be stepping down in the next quarter, has managed to transform Amazon from an online bookstore to one of the most valuable companies in the world. The stock market has rewarded it, as the share price is currently more than 100,000% up from its price at the time of Amazon’s initial public offering (IPO). This has made Jeff Bezos the second richest man in the world, after Elon Musk, CEO and Co-founder of Tesla (NASDAQ: TSLA).
Amazon has a reputation for entering well-established markets and disrupting the major competitors through technological innovation and mass scale. They started that with books, taking on booksellers and publishers around the world. They went on taking every major player in every industry they stepped into. As per its quarterly and annual financial statements, they have five major sources of revenue; Online stores, Amazon Marketplace, Physical stores, Amazon Web Services, and subscription services.
Amazon and the e-commerce industry
The company offers its customers a wide selection of durable and consumer goods along with digital-format products, such as e-books, videos, software, music, and games. As per the latest filings, 88% of Amazon’s revenue comes from retail sales. Online stores accounted for $197.3 billion in sales in FY 2020, or about 51% of net sales(revenue).
The global pandemic had a major effect on online sales, as people turned to the retail giant for their everyday necessities. As an effect, out of the total online sales in the calendar year 2020 which accounted for $386.06 billion, grocery accounted for $75 billion, whereas in 2018, it accounted for only $25 billion. To say Amazon dominates the online retail market would be an understatement. Amazon accounted for 47% of all online retail sales in the US and 30% of all online retail sales in the UK.
Over the years, Amazon under Jeff Bezos has acquired a number of companies to expand its reach and to enter other markets including online media. Major acquisitions include Audible, CreateSpace, Goodreads, IMDb, Whole Foods, Woot, and Zappos.
Amazon has had an effect on people’s lives, from how they spent their money to jobs and inflation. Those who believed and invested in the company have been rewarded with massive gains, with some even becoming millionaires. All of this has prompt investors to look for stocks that could be the next Amazon. Here are some stocks that fit the shoes.
The next Amazon stocks:
Shopify is a platform that helps small and medium business sell their products online, by setting up an online store. Shopify provides a range of services to online retailers including payments, marketing, shipping, and customer engagement tools. The platform makes it easy for retailers, small or large, to enter the online marketplace, create an online shopping experience, establish a customer base, engage the customers and most importantly, sell their products.
As of January 2021, 3.6 million online stores in approximately 175 countries run on Shopify. The total gross merchandise volume exceeded $61 billion for calendar 2019. Shopify revenue for the twelve months ending September 30, 2020, was $2.457 billion, a 73.4% increase year-over-year. Initially released in 2006, the total sales on the platform has exceeded $230 billion as of Feb 2021.
Over the years, Shopify has turned out to be the ‘one-stop-shop’ for everything related to the online marketplace. They have continuously expanded their offerings aiming to help small and medium businesses in particular, as the founder, Tobi Lütke has often mentioned. This was particularly important as the whole world went into lockdown, due to the outbreak of COVID-19. Small businesses struggled the most and they had to find a way to get through the lockdowns, so they took everything online to keep their business afloat, where Shopify came to their rescue. E-commerce penetration in the U.S. took a steep increase from 16% at the end of 2019 to 27% at the end of April.
Shopify’s vision is centered around merchants- ‘focus on your products and let us take care of everything else’. Apart from the traditional easy-to-use eCommerce platform, Shopify offers a wide range of services, including emailing, shipping, and financial services. Besides, with Shopify, setting up an online store only takes about 30 minutes, as no coding is required.
According to Forbes, Shopify’s Revenues could grow by over 3.5x from estimated levels of $2.6 billion in 2020 to close to $9 billion by 2025, representing a growth rate of almost 29% per year (for context annual growth was about 60% over the last three years).
Shopify and Amazon
More often than not, Shopify has been compared with Amazon. While the former is seen as an entity that helps and serves the small and medium businesses to keep their businesses afloat, the latter is seen as a formidable force that preys off businesses. This perception comes from the experience businesses have with each of the platforms.
There have been reports suggesting that Amazon has been using sales data from each customer interaction of every brand on its platform, which brands often don’t have access to, to create products that compete with these same brands. Even if the brands can compete with the Amazon products in this unfair competition, the brands lose out on one of the significant factors of any business – customer data. Knowing who the customers are and communicating with them directly, taking feedback, and improving their products is key in the growth of a company, and brands are devoid of it. That’s the price they must pay if they want to be in the largest online marketplace.
And there is the ocean of counterfeit products on the platform, which according to Forbes, was what forced Nike to pull out its apparel and shoes off the marketplace. The user experience on the site hasn’t been good either when it comes to fashion products, especially for luxury brands.
This is where Shopify comes in. The platform enables businesses to have everything for themselves. They get to choose every single aspect of their online business. It is not just the ease-of-use to set up an online store that attracts merchants to Shopify. The platform allows them to create a unique shopping experience for their customers, and provide all the necessary tools to keep them coming back for more. All of these attract the merchants to use Shopify, which not only helps them in establishing an online presence, but to create and sell quality products, and use the feedback to improve them constantly.
Shopify might be a long way from where Amazon is, but they are here to stay. Their focus on the satisfaction of businesses is how they established themselves in the world of e-commerce, and as long as they continue to do that, they are on their way to the top and it is a stock to watch out for.
Etsy is the best performing S&P 500 stock of 2020. Etsy is an e-commerce platform that sells handmade or vintage and crafty items. It enables anyone who creates or designs handmade items or collects vintage items to sell them on the platform. Even though the majority of sellers on Etsy are in the US, which accounts for 62%, sellers from over 234 countries use Etsy to sell their products.
In 2019, the number of active sellers on the Etsy.com platform stood at 2.5 million and the site had 45.7 million active buyers who had bought goods through the platform. As of Q2 2020, there are 60.27 million buyers on Etsy. The company has three primary revenue streams: marketplace revenues including fees for sales transactions and listings, seller service revenues, and other revenues including third-party payment processor fees. As of February 2021, the company has a market capitalization of $28.98 billion.
Etsy and Amazon
Etsy has been dominating the handmade market for several years. Even though their main competitor is Amazon, the retail giant is more of an ‘everything store’ where you can get literally everything, and the Handmade section of the platform is not quite popular among the 300 million active customers Amazon has. Whereas Etsy, with its 45 million active buyers has been doing really well, with its annual revenue rising from $125 million in 2013 to $818.79 million in 2019. This was more prominent as the whole world went into lockdown. In the third quarter of 2020, the company generated a gross merchandise sales (GMS) of $2.63 billion, up from $1.2 billion in the corresponding quarter of the previous year. This represents a 119.4% year-on-year growth. During that quarter, the company generated over $451.5 million in revenues, up from $428.7 million in the previous quarter.
If we look from the perspective of a seller, there are some major differences between Etsy and Amazon, starting with expenses. While Etsy charges 5% of the final value of each product sold, Amazon charges 15% of the final value of each product sold. In addition to that, there is a $39.99 monthly charge, if you sell more than 40 non-handmade items on one account and a minimum of $1 referral fee, whereas there is no monthly charge on Etsy. Moreover, when you sell on Etsy, funds are available to you as soon as the customer completes the transaction. However, on Amazon, it has a lengthy process and the fund transfer can take up to 24 days, as the fund is only transferred once the product is shipped. Also, when it comes to listing your handmade products on these platforms, Etsy has 160 defined product categories, whereas Amazon has only 14 narrowly defined categories and doesn’t allow products that don’t fit into these categories.
If we look at the number of customers on the platform, Etsy is nowhere near Amazon, as the former has 45 million active users, while Amazon has 300 million active users. Then again, people visiting Amazon might not be particularly looking for Handmade, but on Etsy, they are specifically looking for handmade products. Add it to the fact Etsy is cheaper to sell on than Amazon. Etsy has helped about 95% of its sellers to run a shop from the comfort of their home. Also, 40% of buyers are repeat customers, which is key in the long term success. As more and more people are choosing to buy handmade items over mass-produced ones, they are likely to choose a platform that only focuses on Handmade and Vintage items, over an ‘everything store’.
Chewy is an online marketplace for pet food and other pet-related products. The company was acquired by PetSmart for $3.5 billion in 2017, which was the largest-ever acquisition of an e-commerce company at the time. Founded in 2011, under the name of Mr.Chewy, the company grew rapidly. Within 7 years of launch, the company crossed $2 billion in annual revenue, and they haven’t looked back ever since. Chewy’s revenue for the twelve months ending October 31, 2020, was $6.45 billion, a 40.99% increase year-over-year. The company is currently valued at $44.19 billion.
We believe that Chewy has a long way to go, given that the global pet food market was valued at $90.13 billion in 2019, and is projected to reach $127.21 billion by 2027. According to the American Pet Products Association (APPA) 67% of U.S. households, or about 85 million families, own a pet, which is up from 56 percent, 30 years ago. Besides, the pandemic has changed a few things. As more and more people were confined to indoor environments, pet adoption rose, as people were looking for a companion to spend time with. According to the Washington Post, shelters, nonprofit rescues, private breeders, pet stores — all reported more consumer demand than there were dogs and puppies to fill it. Some rescues were reporting dozens of applications for individual dogs. Some breeders were reporting waiting lists well into 2021. As for those people who already owned pets, the pandemic made them spend more time with their pets. Thus, they choose to buy food and other pet products for their pets online, since going out wasn’t really an option.
Moreover, the trend of buying pet products online, like everything else, is here to stay. The global pet care e-commerce market size was valued at $20.75 billion in 2019 and is expected to grow at a compound annual growth rate (CAGR) of 11.3% from 2020 to 2027. According to Sumit Singh, CEO of Chewy, the company serves about 18 million customers, just a fraction of the estimated 100 million US pet-owning households. They are expecting to see even more growth as the company seeks to take more share in the $100 billion pet supplies market.
Chewy and Amazon
Chewy’s focus on customer experience is what makes them stand out from their competitors. Even while facing competition from giants like Amazon, their focus on customer service hasn’t changed a bit. As explained by the CEO himself, the company gets calls every day from customers who want to know what they should get for their puppies. Chewy has customer representatives who can answer that. They can even suggest what you should be giving to a two-month-old Labrador retriever. When customers call up Chewy asking for ‘what should I do?’, their customer service representatives guide them through the steps, not only enhancing the customer experience but also building a relationship as the emotional aspect of taking care of a pet is involved.
There was even a story of Joseph Inabnet, whose dog, Bailey had passed away and Joseph wanted to return the dog food that was left, hoping to get a refund. Chewy gave him a refund but instead of taking the dog food back, they asked Joseph to donate it to a shelter or someone in need. A couple of days later, Joseph received a handwritten note from Chewy, along with an oil painting of his dog, Bailey. Chewy made sure that Joseph has a beautiful memory of his dog with him.
Through many similar instances, Chewy has shown that they are a company that cares, about their products, their customers, and more importantly, the pets. And Chewy has secured a place in the heart of pet owners around the world, with some even saying that they will buy from Chewy for life. That’s an advantage Chewy has over Amazon, while the latter is a place where you can get everything, the former focuses on a small but essential value proposition, and delivers it.
Chewy is one of the 10 stocks that we recommended, which are up more than 100% since our recommendation. You can find the other 9 stocks by subscribing to our email list here.
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