Wednesday, June 27, 2012

How Big Can Amazon Get?

After a brief malaise, AMZN's stock has started to outperform the market again.  It now sports a market cap of over $100B.  WMT, by contrast, which does almost 10x AMZN's sales, has a market cap that is only 2.3x AMZN's.  The AMZN thesis continues to be that internet retailing will take more and more share from brick and mortar and that AMZN will be the dominant online site.  E-commerce sales are now just below 5% of total US retail sales.

Still, there are certain consumption expenditures that are highly unlikely to ever move online (e.g. Restaurants, Gas and Groceries).  Below is a chart of US retail sales broken down by category and likelihood of online spend.  Red categories are those that I subjectively labeled as unlikely to be purchased online, blue are those that are more likely to have some share online.  I've faded the color on categories that may lean one way or the other.  By my analysis, nearly 3/4 of US retail sales are unlikely to be made online.  Only a portion of the remaining 25% is likely to be spent online too.  

US retail sales are ~$4T.  WMT sells for 0.5x sales, implying that AMZN would need to do $200B worth of sales to justify its current market cap with WMT's multiple.  AMZN has ~25% of e-commerce market share with $40B+ in sales, so if it keeps that market share, online sales would need to be about $800B to justify AMZN's current market cap.  That's 20% of current US retail sales.

No comments:

Post a Comment

For compliance reasons, I don't post comments to the site, but I do like hearing from readers and am happy to answer any questions. Feel free to use the comment box to get in touch. Please leave an email address in your comment so that I can write back, or email me directly at