There’s no question that Amazon.com, Inc. (NASDAQ:AMZN) has been one of the most disruptive forces ever in both retail and technology.
However, Wal-Mart Stores, Inc. (NYSE: WMT), Microsoft Corporation (NASDAQ: MSFT) and American Eagle Outfitters (NYSE:AEO) are three companies that are still thriving in areas that AMZN has left mostly barren through its dominance.
Here’s why investors in these stocks are confident that they don’t necessarily have to beat AMZN to succeed.
Stocks Feasting on Amazon’s Leftovers: Wal-Mart Stores, Inc. (WMT)
Not only did WMT deliver its strongest same-store sales growth (1.6%) since 2013 in Q2, it also grew digital sales by 11.8%. Those numbers are nowhere near the staggering growth numbers that Amazon has been reporting. But they are positive growth numbers in an extremely difficult environment.
Moody’s analyst Charlie O’Shea said it best: “No one catches Amazon online. The key is to be No. 2.”
WMT’s recent $3 billion buyout of Jet.com may be the clearest sign that the company is aggressively pursuing that No. 2 spot. Not only has Jet reported Amazon-esque 168% sales growth in the past year, it also provides WMT with a fresh brand to market as a pure online Amazon rival. No matter how great WMT makes Walmart.com, it is not fresh and exciting the way Jet.com could be. Plus, Jet will benefit from WMT’s scale and vendor relationships.
It could end up being a perfect match, and Jet.com might have a firm grip on that No. 2 spot behind Amazon within a matter of years.
Stocks Feasting on Amazon’s Leftovers: American Eagle Outfitters (AEO)
The long and growing list of mall retailers that Amazon has driven into bankruptcy is staggering. Just this month, Aeropostale Inc (OTCMKTS:AROPQ) joined Wet Seal, American Apparel and Pacific Sunwear as the latest teen retailer to declare bankruptcy. Sears Holding Corp (NASDAQ:SHLD), Macy’s Inc (NYSE:M), J C Penney Company Inc (NYSE:JCP) and other prominent mall retailers have been closing stores right and left trying to survive.
Yet in the middle of all this e-commerce mall carnage, AEO is flourishing. The company recently reported an extremely strong Q2. Earnings-per-share jumped from $0.17 to $0.23 year-over-year. Revenue was up 3.2%. Comparable-store sales were up 3%. Sure, these numbers aren’t mind-blowing, but they are positive and they are consistent. In fact, AEO’s revenue is up more than 20% in the last five years, while Amazon has driven so many other retailers out of business.
According to company management, AEO’s recent success has been a result of improving merchandise quality, investing in online and mobile platforms and controlling inventory so that the company doesn’t have to resort to large, margin-eating price cuts.
While it’s true that overall mall traffic has been trending down, mall traffic among teens has actually been on the rise in 2016 for the first time in several years. With a number of competitors closing stores, that leaves AEO to capture even more of that critical teen market share.
AEO isn’t beating Amazon, but the company is doing just fine. AEO stock is up more than 70% in the last five years.
Stocks Feasting on Amazon’s Leftovers: Microsoft Corporation (MSFT)
It seems like cloud computing came out of nowhere in the past decade. It also seems like Amazon’s AWS established a dominant position in the massive cloud services market overnight. In reality, it took years of heavy investing for Amazon to become the standard-bearer in cloud services.
Fortunately, there’s plenty of pie to go around.
Amazon’s cloud dominance is unquestionable. As of early June, Amazon held roughly 40% of the global cloud market share. With only about 8% market share, MSFT’s Azure seems like a distant second place. However, just this week, Pacific Crest analyst Brent Bracelin projected that MSFT could grow to become the biggest Software as a Service provider in the world by 2020. Pacific Crest also projects that the SaaS market could reach $88 billion annually within the next four years.
Amazon’s lead in cloud services is likely insurmountable for MSFT. But if Microsoft can continue to add to its 8% market share over time, second place in a potentially $200 billion annual cloud computing market is still plenty of reason to like MSFT stock.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.
