Amazon (AMZN) - Get Amazon.com Inc. Report has been investing heavily in its ecosystem. The company has created multiple streams of revenue not only for profit generation but also for boosting its chain of services.
But because the synergies among its brands can be tough to estimate, analysts may find it challenging to price Amazon's stock.
In fact, by starting with the e-commerce marketplace and expanding to media production, media distribution and advertising, the Seattle-based titan is poised to dominate much bigger shares of the e-commerce industry.
Today, the Amazon Maven discusses these synergies, why we believe they add so much value to Amazon’s e-commerce business, and the missing ingredient that Amazon might be after in order to complete its strategy.
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Where People Buy
Amazon has been significantly expanding its brand in an effort to become the first e-commerce marketplace customers think about when they want to shop. To accomplish this, Bezos’ juggernaut has to do three main things:
- Offer the lowest prices (so people would always check Amazon’s website before acquiring any product from its competitors)
- Ship and deliver quickly (to compensate for brick-and-mortar's best advantage over e-commerce)
- Offer absolutely every single product possible
I believe Amazon has achieved the first item successfully. And it has clearly achieved the second: Not only have Amazon’s logistics services surpassed FedEx and UPS, but the company has also been investing heavily in its own physical stores.
The third item is the most interesting one. Amazon is trying to evolve from an “everything" store to a “beyond everything” one. The company wants to offer more than its competitors can, and the only way to do so is by creating its own product lines.
Although Kindle and Alexa are very successful projects, I believe in the future the company will try to offer the largest product catalog it can (and will improve its margins through the verticalization).
What People Buy
To achieve the goal of maximizing sales, Amazon must be more than the first option for customers. The company needs to anticipate their desires.
Herein lies the importance of its multiple platforms, such as Amazon Prime Video, Amazon Music, Twitch, Audible, and its advertising arm.
By understanding customer preferences and likes, Amazon is able to know which products to offer to each customer, even if they have never thought about buying them before.
As most competitors must rely on Google (GOOGL) - Get Alphabet Inc. Report or Facebook (META) - Get Meta Platforms Inc. Report ads, Amazon’s capability to do it in-house gives the company a valuable edge. In fact, I would not be surprised if Amazon’s next step were acquiring (or even developing) a social media platform.
What People Want to Buy
Amazon has become the main e-commerce platform in the U.S., and its businesses share countless synergies. Therefore, I believe the company’s next step will be creating new product demands — and that’s not restricted to gadgets or gaming.
For instance, Amazon could create its own clothing brand and promote it in an exclusive Prime Video series. Customers could see an actor wearing a jacket they like and then click on the screen to complete the purchase while still watching the show.
Because Amazon (1) has the best characteristics required to build such an ecosystem and (2) has no competitors with similar traits, I believe the company's e-commerce business is poised to revolutionize the industry in the long term.
(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)