Online Retail Momentum and Smartphone Proliferation Lift Outlook for Amazon
According to a recent report from IBM (NYSE:IBM) Coremetrics, online sales during the 2010 holiday season increased roughly 24% year-over-year (YOY) in November and 12% YOY in December. [1] This growth outpaced the improvement recorded by the overall U.S. retail and food services sector, which grew at around 8% YOY in December 2010. [2] Although the retail sector growth benefits brick-and-mortar stores like Wal-Mart (NYSE:WMT), Costco (NASDAQ:COST) and Best Buy (NYSE:BBY), the faster online sales growth suggests greater upside for players like Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY).
Sales occurring through mobile phones accounted for roughly 5.5% of all online retail sales in December 2010, up 7% from November. [1] These are encouraging signs for the long-term outlook of online retailers.
Our price estimate for Amazon stands at $182, roughly 5% below market price. However, recent trends could present upside to our forecasts.
Increasing Online Shift a Positive for Amazon
Online retail shopping has grown at a faster rate than the overall retail sector growth over the last few years. We estimate that the mix of U.S. electronics and general merchandise (EGM) sales occurring online has increased from around 5% in 2004 to around 12% in 2010, and could hit nearly 26% by 2017.
Not only does online shopping provides consumers the convenience to shop from anywhere, it also allows them to better research a particular product for optimal quality and price. Mobile phone usage for shopping provides another advantage to the consumer. Sophisticated smartphone features such as mobile shopping apps and barcode scanners means that mobile phones could play an important role in the growth of online EGM sales (See Smartphone eCommerce can boost Amazon’s stock).
There could be an upside of 10% to our price estimate for Amazon stock if the online penetration of EGM retail sales accelerates towards 33% by the end of our forecast period. As our number currently stands about 5% below market price, this scenario could present a buying opportunity for investors.
Drag the trend line in the modifiable chart above to see the affect of various online EGM sales mix scenarios on Amazon’s stock value.
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You can see the complete $182 Trefis Price estimate for Amazon stock here.
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