Amazon Stock: Could Antitrust Ruin Alexa?

Big Tech remains the target of antitrust scrutiny. The most recent attack came from home speaker vendor Sonos against Alexa and the Echo family. Here is how Amazon stock could be impacted.
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Antitrust has been a hot topic in the world of Big Tech lately. The latest news came from Sonos, a tech device vendor specialized in home entertainment that wants to make it harder for Amazon  (AMZN) - Get Report and Google to dominate the home audio device market.

A few days ago, our sister channel Apple Maven published a discussion on the antitrust war and the impact for tech peer Apple. Today, the Amazon Maven weighs in on how the same topic could affect the Seattle-based company’s Alexa business and, as a result, Amazon stock.

Figure 1: Amazon Echo Dot (3rd generation).

Figure 1: Amazon Echo Dot (3rd generation).

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Sonos vs. Amazon

Sonos has asked Congress for more stringent control over the alleged dominant role of Amazon and Google in the wireless speaker market. The company argues that:

"An antitrust regime for the digital age must promote nondiscrimination by addressing restrictions on interoperability, predatory pricing, cross-subsidization, and misuse of data."

Amazon's representatives have defended the company by claiming that its products generate opportunities for other types of businesses, including third-party manufacturers. For instance, Alexa AI can boost the appeal of competitor products in the smart home space, not only Amazon devices.

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Alexa’s impact on Amazon’s revenues

Last year, 227 million wireless speaker units were sold. Shipments are expected to more than double by 2026, reaching 500 million. Amazon controlled 53% of the market, despite showing consecutive declines in recent years (see graphic below). Google with 30% and Sonos at 5% came next.

Figure 2: U.S smart speaker market share by brand.

Figure 2: U.S smart speaker market share by brand.

It is unclear how much revenue Amazon has produced in speakers. The company does not report Echo device sales separately, lumping it in instead within the online store sub-segment. The lion's share of non-AWS sales come from the online stores, at $197 billion in sales last year.

If Amazon owned 53% of a market of 220 million speakers, then 116 million Amazon Echo were sold in 2020 globally. Assuming an average list price of $40-$60 per unit, the e-commerce giant would have produced $7 billion in revenues from Echo at most, amounting to barely 3% of “online stores”.

Figure 3: Non-cloud revenues/growth by subsegment.

Figure 3: Non-cloud revenues/growth by subsegment.

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The Amazon Maven’s take

The Amazon Maven believes that antitrust issues within Big Tech will continue to surface due to the companies’ ability to leverage their ecosystems. The FAAMG group’s signature business model arguably prevents smaller competitors from playing a bigger role within their markets.

Today, Amazon’s Echo may seem small given Amazon's total revenues, tricking some into thinking that Amazon’s fight with Sonos might not be as relevant. But Echo’s Alexa plays an important role in establishing an advantage for Amazon's e-commerce strategy, as it helps to generate revenue indirectly.

The key risk to the antitrust war is hidden under the surface: not in how much Amazon might miss out on Echo revenues, but in how the company’s retail model might be impacted. Stay tuned for the next chapters in this story that will likely drag on for many more months, if not years.

Twitter speaks

Amazon, Apple and Alphabet run strong ecosystem-based business models that allow them to be dominant players across several markets. In your opinion, should Big Tech be regulated to level the playing field for the underdogs? Leave your opinion below and follow @AmazonMaven on Twitter!

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)