Demise of Amazon: D.A. Davidson outlines risks

Amazon CEO Jeff Bezos Announces Blue Moon, a Moon Landing Car for the Moon, during a Blue Origin event in Washington, DC, May 9, 2019.

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Wall Street loves Amazon and investors have come up with 20% this year.

But one of the most bullish candidates warns that there are several threatening risk factors facing the company now.

D.A. Davidson's Tom Forte, which has one of the highest target prices for Amazon at $ 2,550 per share, according to FactSet, wrote in a note published Thursday that he closely monitors four warning signs that could potentially lead to "downfall of the Amazon". [1[ads1]9659002] While Forte boxed a "buy" rating for Amazon and kept its price target unchanged, he wrote that the following four risk factors could negatively impact Amazon's future performance:

  • Amazon has become so big that it would be more difficult to impress investors with rapid growth rates. For example, Amazon needs $ 2.3 billion of extra sales just to generate 1% growth, based on last year's $ 232 billion revenue, Forte noted. As a result, Forte expects the Amazon sales to grow by 15.5%, from the previous three-year 29.6% compound growth rate.
  • Follow-up: What happens when Amazon CEO Jeff Bezos decides to retire? This can lead to "significant success risk", Forte notes, as the move to the next CEO could slow down the overall business. At the same time, Forte tells that Amazon is well prepared for the change, with a deep bench of leaders who could potentially take the helm when Bezos leaves. Bezos, now 55, has not said much about his success plan. For reference, Bill Gates was 45 years old when he left his position as Microsoft CEO, while Starbucks & # 39; Howard Schultz & Walmart & # 39; s Sam Walton both had much longer careers.
  • Competition: Amazon will face increasing competition in its core e-commerce space, as most weaker players have already disappeared. That means Amazon has to enter new big markets, where more competition is waiting to sustain growth. Forte writes. Two of the most challenging areas for Amazon in the future are clothing and groceries, Forte notes, as the company has struggled to see much growth in both areas. He believes that Amazon needs more than just advanced technology to win categories like women's fashion, while listing of the Whole Foods acquisition hasn't really moved the needle into winning share in the grocery category.
  • Regulation: Forte notes that the US Government could "stop Amazon in the tracks" if antitrust or other regulatory control of the company is taking off. Although Amazon's low price quota could make an antitrust case challenging to pursue, Forte says its major market power could push extra regulatory pressure both in the United States and abroad. He wrote the potential for antitrust and regulation worldwide could "negatively impact Amazon's operating profit and stunt its future growth."

Forte concludes that he still believes in the company, but follows carefully warning signs.

"As much as we keep the founder, chairman, chief executive and president Jeff Bezos in the highest regard, and who we are optimistic about the company's ability to maintain an elevated growth rate by further penetrating existing markets and posting new ones, , a premium several in the coming years, we monitor the company and the warning sign warehouse that may cause AMZN to be destroyed. "

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