AMZN Stock: India Isn’t Amazon’s Next Major Growth Market

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I have a lot of respect for Amazon (AMZN) founder and CEO Jeff Bezos. He’s made holders of AMZN stock fantastically wealthy over the past two decades. The man practically invented e-commerce at a time when most Americans would have laughed at the idea of sending their credit or debit card details over the Internet. (Think back to the mid-1990s. How likely were you to actually buy something online at that time?)

Amazon AMZN

But, Bezos wasn’t content with being the world’s online bookstore. After taking a wrecking ball to Barnes & Noble (BKS) and Borders, Bezos and AMZN took on the likes of Wal-Mart (WMT), Target (TGT) and Best Buy (BBY)… and all three have since been scrambling to compete.

If that wasn’t enough, AMZN goes head to head with Microsoft (MSFT) and Google (GOOGL) in its cloud services business. Amazon is like an unstoppable army that can simultaneously wage war on multiple fronts.

Amazon’s Napoleonic Invasion of India

But you have to wonder if, by pushing into India’s retail market, Bezos is doing the equivalent of Napoleon’s invasion of Russia. I’m not suggesting that a setback in India will be the undoing of the Amazon empire. Far from it, actually. But, I do think that India will be a hard nut to crack, even for a revolutionary like Bezos.

Plus, I don’t see expansion into India as the next major catalyst for the Amazon stock price. In fact, it will probably be a giant money pit that will destroy a fair bit of shareholder value.

Case in point, consider the Behemoth of Bentonville. Wal-Mart — arguably the best retail enterprise in history — couldn’t make it work in India. Two years ago, Wal-Mart put its expansion plans in India on indefinite hold due to the lousy infrastructure, government red tape, and fierce resistance from India’s smaller domestic retailers.

Wal-Mart timidly stuck its big toe back into the water earlier this year, but its plans are far more modest this go around. Wal-Mart is a company that has never backed down from a fight, yet India effectively broke WMT’s will.

Political Change in India

To be fair, a fair bit has changed in the past couple of years. India elected a pragmatic prime minister in Narendra Modi, a man who has been an effective cutter of red tape for his entire political career. It is entirely possible that Modi’s reforms will eventually make doing business on a large scale in India viable. But, any improvement on that front will take years, so don’t expect much of an impact on the Amazon stock price any time soon.

AMZN’s management is not stupid. They saw the morass that trapped Wal-Mart, so they are trying a different approach, for now. Rather than operate as a retailer in its own right, AMZN is opting to act more as a platform for other vendors. It’s basically an Indian version of the “fulfilled by Amazon” program here in the U.S.

But, all the same, AMZN is going to have a hard time replicating its U.S. model on India’s shoddy roads and infrastructure…unless India does something truly revolutionary (like give AMZN free reign to deliver its products via drones).

In the meantime, the Amazon steamroller continues to flatten competition stateside. While I consider AMZN stock too pricey to buy at current levels (it trades for 3 times sales, making it roughly seven times more expensive than its closest competitor, Wal-Mart), I continue to see great things for the company. I’m just keeping my enthusiasm in check for its foray into India.

Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog. As of this writing he was long MSFT.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/12/amzn-stock-india-will-not-amazons-next-major-growth-market/.

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