- Reports on Black Friday and holiday sales estimates have started to pour in, and they look highly favorable to Amazon.
- The best retailers at online shopping will likely continue to thrive at the expense of the more traditional, brick-and-mortar players.
- I think that AMZN may be a solid buy at the current market value of $1.6 trillion, despite rich valuation multiples.
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Investors are about to be reminded of Amazon’s (NASDAQ:AMZN) position of strength in the retail space in a year of pandemic that has likely reshaped consumer behavior beyond 2020. Reports on Black Friday and holiday sales estimates have started to pour in. While overall consumer spending may not be much more robust this time than it has been in recent years, understandably so, given the pandemic and ensuing economic softness, Amazon and its digital sales-heavy peers are likely to come out ahead of the pack.
Revenue strength in the fourth quarter, coupled with a stock that remains about 11% off its all-time high, may suggest that AMZN is a buy opportunity as 2020 draws close to an end.
Credit: Amazon
Not a typical Black Friday
As COVID-19 cases continue to rise fast and impact businesses’ operations, Black Friday weekend this year has looked very different from previous shopping seasons. Research firm RetailNext reports that foot traffic has declined by about half over year-ago levels, an observation that largely agrees with Sensormatic Solutions’ estimated 52% drop. The traditional images of shoppers congregating around piles of boxes at 5 a.m. the day after Thanksgiving have become rare in 2020.
Instead, e-commerce is showing strong signs that it will gain quite a bit of wallet share this time. Digital Commerce 360 projects that digital sales during the Black Friday-to-Cyber Monday period will grow by about 35% YOY, reaching penetration of around 32% (see charts below). Just for reference, the strong double-digit increase over 2019 levels contrasts with overall consumer spending growth of only 0.5% in October, suggesting that the best retailers at online shopping (i.e. best offerings, best platform, most efficient supply chain, most consumer loyalty) will likely thrive at the expense of the more traditional, brick-and-mortar players.
