On its march towards world domination, e-retail and cloud giant Amazon (NASDAQ:AMZN) is disrupting a whole bunch of industries and creating tough times for companies of all shapes and sizes.
First, it was the retail world. Amazon disrupted the whole retail model by reinventing the wheel, taking everything and putting it online, and out-pricing competitors. Traditional retailers suffered.
Since, Amazon has disrupted the technology infrastructure and grocery industries. The outcome has been similar to the retail world. Amazon has won. Other players have suffered.
This disruption is far from over. Amazon is marching towards world domination, and world domination doesn’t end with retail, grocery, and technology services. Over the course of the next several years, Amazon will continue to build new, disruptive businesses across multiple industries.
That presents a serious risk for several companies that stand in Amazon’s way. Here’s a list of four stocks to sell. These stocks could get crushed as Amazon continues its march towards world domination.
Stocks to Sell Before Amazon Crushes Them: Walgreens (WBA)
There have been murmurs regarding an Amazon Pharmacy business for a long time now. But until recently, the murmurs were just murmurs. Many pundits thought it nearly impossible for Amazon to launch a pharmacy business at the same scale as traditional pharmacy giants like Walgreens (NASDAQ:WBA). Why? Because being a pharmacy requires a pharmacy license. And getting a pharmacy license in all 50 states is a tall order that takes a long time.
But Amazon just acquired PillPack, and in so doing, acquired pharmacy licenses in all 50 states just like that. Now, Amazon is ready to launch an online pharmacy business in all 50 states.
That presents a serious risk for Walgreens and other pharmacy operators. The pharmacy world has a big learning curve, and Amazon will face some growing pains. But we’ve already seen this rodeo before in retail. The result will be that Amazon’s online pharmacy business, due to lower prices and enhanced convenience, gains tremendous market share at the expense of Walgreens and others.
WBA stock may be priced for this reality. After all, it isn’t that expensive at under 11-times forward earnings. But the narrative won’t get any better, and that could prove painful for the stock.
Stocks to Sell Before Amazon Crushes Them: AMC Entertainment (AMC)
A few years back, Amazon and Netflix (NASDAQ:NFLX) were in a two-horse race for best video streaming service. But now, that two-horse race has a clear winner, and it isn’t Amazon.
I don’t think Amazon will give up on video streaming. Instead, I expect the company to find a new way to compete with Netflix.
One way of doing that would be creating Amazon movie theaters. These theaters would show only Amazon originals, and would be normal prices for non-Prime members and very cheap for Prime members (perhaps even free). The whole point of these theaters would be to increase Amazon Video awareness while building out an additional perks (super cheap movie theater tickets) for Prime members so as to boost Prime adoption rates.
One company that could lose as a result of Amazon theaters would be AMC Entertainment (NYSE:AMC). AMC is America’s largest movie theater operator, and as such, has broad exposure to disruption in the movie theater business.
That being said, AMC theaters will likely offer different content than these hypothetical Amazon theaters. As such, direct disruption to AMC would be small. Further, Amazon might even look to acquire AMC if the company wants to jump into this space (Amazon pulled a similar move in grocery).
Stocks to Sell Before Amazon Crushes Them: United Parcel Service (UPS)
The traditional package delivery market in the U.S. is prime for disruption. And it looks like Amazon will be the company that does the disrupting.
Amazon has been trying to develop its own delivery system for a while now. The company has leveraged the sharing economy and drones for last-mile delivery, leased aircraft for cross-country shipments, and built a massive fulfillment center network that puts their products close to essentially everyone in the U.S.
Eventually, all these moving parts will come together. Amazon will have its own fully fleshed out delivery system. Amazon will stop using United Parcel Service (NYSE:UPS). Then, Amazon will start offering its delivery system to other companies.
This is essentially what Amazon did with Amazon Web Services. The company stops using a third-party to provide a service. They build that service in-house. Then, they sell that service to other companies.
Amazon Web Services has been a huge success. Amazon Logistics will also be a big success, mostly because the company has the infrastructure and resources in place to create an efficient delivery system.
What does that mean for UPS and other traditional delivery giants? Nothing good. Over the next decade, they will inevitably cede market share to Amazon. UPS stock, which trades at 15-times forward earnings, isn’t fully priced for that reality.
Stocks to Sell Before Amazon Crushes Them: Spotify (SPOT)
But that could change soon. For several reasons.
One, Amazon is pulling a classic Amazon move by offering Amazon Music Unlimited, normally priced at $7.99 per month, for $0.99 per month for the first 4 months to Prime members. That is dirt cheap (Spotify costs $10 per month), and so low that it is basically in impulse buy range. Thus, this promotion should ultimately increase Amazon Music adoption rates.
Two, the future of music streaming is through smart home devices, and Amazon is the leader in the smart home category. As Amazon’s smart devices grow in popularity, Amazon can very easily push Amazon Music over Spotify or any other streaming music service.
Three, as Amazon builds out perks for Prime, Amazon Music adoption rates will naturally go up. The logic is pretty simple. The more perks Prime has, the more members Prime has. The more members Prime has, the more Amazon Music members there are.
As such, Amazon Music could become a big player in the streaming music world. That is really bad news for Spotify stock, which trades at a massive valuation and is being priced for global domination of the streaming music industry.
As of this writing, Luke Lango was long AMZN and AMC.
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