BERNSTEIN: Amazon could disappoint in 2018

  • Amazon could underperform its retail peers, Bernstein said in a note listing possible 2018 surprises.
  • It’s a heavily owned stock, with an expensive valuation, which could impact its ability to outperform.


Amazon had a stellar 2017. The stock rose 55% during the year, fueled by ever-increasing earnings and the high-profile buyout of Whole Foods.

But such a great year could be setting Amazon up for a less-than-stellar 2018, Bernstein warns.

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"In 2017, most retailers felt the pain of Amazon’s dominance, and investors watched as the rest of the retail sector barely squeaked out positive performance. The consensus is that this pattern continues in 2018 and rewards Amazon with another year outperforming retail peers. But could the market be surprised?" the firm wrote in a note highlighting possible 2018 surprises. 

7 shock-worthy facts about Amazon:

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7 shock-worthy facts about Amazon
7.5 percent of Seattle's working-age population are Amazon employees

Amazon has more than 300,000 employees worldwide, and 40,000 in Seattle alone.

As a portion of the city's working-age population — roughly 528,000 — that comes out to 7.5% of the city working at Amazon.

For perspective, if the same portion of New York City's adults worked for one company, that company would have about 488,000 locals on staff.

Amazon accounts for 43% of all online sales

Amazon used to be a way to buy books online; today, it's the default buying site for just about everything, especially for people who have Amazon Prime.

An analysis by Slice Intelligence released in February found that 43% of all US online retail sales were done through Amazon in 2016.

That's up from 33% in 2015 and 25% in 2012.

1 out of every 4 US adults has Amazon Prime.

Speaking of Amazon Prime, the company now counts approximately 63 million people among its subscriber base, or about 25% of the total US adult population.

That number may underestimate the true coverage, however, since it doesn't account for multiple adults in one household all sharing the same Prime account.

Amazon ships 1.6 million packages a day

Amazon fulfillment is a beast of its own.

A report from 2013 (the latest year for which data are available) found Amazon shipped 608 million packages that year, or 1.6 million packages a day.

As of 2015, Amazon estimated its fulfillment centers were within 20 miles of 31% of the US population, and within 20 miles of 50-65% of its core, same-day-accessible market.

That's enough cardboard to span all of West Virginia

A back-of-the-envelope calculation reveals all those packages (not including padded envelopes) yield roughly 26,400 square miles of cardboard.

The total land area of West Virginia, meanwhile, is just north of 24,000 square miles.

Given the speed of Amazon's shipments, the company could blanket the whole US in cardboard in about five months.

45,000 robots roam the floors of Amazon's warehouses

To help those shipments leave the warehouses on time, Amazon relies on a growing fleet of autonomous robots that fetch packages from their shelves and bring them to human employees.

The 45,000 robots live across 20 fulfillment centers in the US. In 2016, the company increased the fleet 50% from its prior head count of 30,000.

Amazon is more valuable than all major brick-and-mortar retailers combined

The sum total of those investments in infrastructure and supply chain management have made Amazon by far the most valuable retailer in the United States.

Amazon's $356 billion valuation is so big, it's larger than Wal-Mart, Target, Best Buy, Macy's, Kohl's, JCPenney, and Sears combined.

With the recent acquisition of Whole Foods, there are no signs the retailer has any plans of slowing down.

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“The success certain [electronics and luxury] retailers are having should at some point be more widely recognized. Coupled with the already high level of ownership and lofty valuation, we wouldn’t be surprised to see Amazon underperform these other retailers next year.”

Amazon is one of the most popular stocks for both retail investors and institutional holders alike. Bank of America said this week that the stock is one of the most overowned on Wall Street, with a relative weight of 1.77 and 50.5% of actively managed funds holding shares. It’s also the most popular stock on Stockpile, an app that lets users — most of which are millennials — buy fractional shares of expensive companies.

To be sure, Wall Street consensus is that Amazon still has plenty of room to run. Analysts polled by Bloomberg have an average price target of $1,298 — that’s another 11% above Wednesday afternoon's share price of $1,169. Bernstein declined to disclose its own price target for the Amazon.

"We are by no means implying that these events are likely, and they are certainly not our base case forecast," Bernstein said.

"But we constantly think about these and other surprises in our “what-if” scenarios, knowing that the market tends to throw curve balls. Keeping potential unexpected events in mind helps ensure we are not left staring like a deer in headlights."

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