The big multiyear losses in shares of Angie’s List Inc (ANGI), Yelp Inc (YELP) and Groupon Inc (GRPN) stock are not by coincidence.
This is a group of companies that all operate in the local retail/services space. While this industry was once fragmented, Amazon.com, Inc. (AMZN) has penetrated the market with authority to cause noticeable pressure on the businesses of smaller competitors like ANGI, YELP and GRPN.
And based on comments from AMZN, the bad is only going to get worse for these niche players.
AMZN Gets Serious About Local Services
Amazon claims that customer orders for its home services (professional installation, plumbing, etc) have grown on average 20% per month since the platform launched last year. With 85 million customers buying products from AMZN that require additional at-home services, the move into this space seems like a natural fit.
Furthermore, based on its customer order growth and the increase from two million to 36 million listed services on the site, we can conclude that it has been a successful move for Amazon.
Unfortunately, Amazon’s success has and most certainly continues to weigh on the likes of ANGI, YELP and GRPN. What Amazon does is give customers the option for home services when purchasing an item that requires installation, whether it be a pipe for plumbing or a new washer & dryer. It is a streamlined, easy process in the 30 metropolitan areas where Amazon’s home services are offered, and is sure to expand all throughout the country soon.
That said, Amazon’s success hurts ANGI, YELP and GRPN in very different ways. Its success does not directly impact all aspects of these three businesses, but still, certain segments of each is affected.
For example, paying subscribers on ANGI who seek handiwork around the house may no longer view their subscription as a necessity, or local service businesses may not feel the need to advertise with Yelp if they are receiving significant work from AMZN.
Lastly, businesses that offer service Groupons to perform jobs may be more reluctant when receiving jobs from Amazon.
Nevertheless, Amazon is becoming an even bigger thorn in the side of each company, and what’s worse for ANGI, GRPN and Yelp is that home services opens the door for bigger local projects from AMZN.
Is Home Services Important to Amazon Stock?
With AMZN expected to reach $130 billion in revenue this year with growth of more than 20%, any success it achieves from home services is likely meaningless to Amazon stock, at least for now. However, it could be meaningful later down the road. Fact is that most consumers around the country still rely on Yelp, Angie’s List, Google or the good ole Yellow Pages to find local services.
Yet, this is a market worth upwards of $400 billion annually, and AMZN can create real revenue long-term by taking a 5% to 19% cut from the service providers’ fee. Therefore, home services is an important, high-margin, long-term growth driver for Amazon stock.
And unfortunately, the more success that AMZN achieves in this space, the more ANGI, YELP, GRPN and others will likely struggle.
As of this writing, Brian Nichols owned none of the aforementioned securities.
