- In the past week, there has been a flurry of analysis from Wall Street on how Amazon could impact various industries, from banking to healthcare to logistics to online travel.
- The analysis is all at least in part based on Amazon's flywheel model, which is built around offering "Earth's biggest selection," using scale to lower the cost of goods and delivery, and providing a great customer experience.
- Seen through this lens, there are few businesses that Amazon couldn't enter and upend.
It seems Wall Street has a new obsession: What's Amazon going to Amazon next?
In the past week, there has been a flurry of analysis from Wall Street on how Amazon could impact various industries, from banking to healthcare to logistics to online travel.
Banking
Amazon is reportedly in talks with several large US banks to launch a "checking account-like product," and it's hiring for its global Amazon Consumer Payments team to expand its payment products internationally. That has some on Wall Street fearing the impact Amazon could have on consumer banking.
Bain & Co partners Gerard du Toit and Aaron Cheris said in a post:
"We could imagine Amazon's banking services growing to more than 70 million US consumer relationships over the next five years or so-the same as Wells Fargo, the third-largest bank in the US. The estimate assumes that slightly more than half of Amazon's estimated US customer base chooses a financial relationship with the firm-the same share of people who said in our new global survey that they expect to buy a financial product from a major technology firm over the next five years."
Investing
Amazon's potential in checking accounts, as well as the threat of platform companies to big finance more generally, has some wondering whether the tech giant could go head-to-head with Wall Street in investments.
What would happen if Amazon decided to launch a robo-adviser, for example? Robo-advisers, a blanket term used to describe automated financial advisers, have become a red-hot market.
It's a question Cynthia Loh, a vice president at Charles Schwab, which manages more than $20 billion in assets through its robo-adviser Schwab Intelligent Advisory, has on her mind. She told Business Insider she saw Amazon as a bigger threat to existing robo-advisers than the big banks.
"A Google or Amazon robo would keep me up at night more than Morgan Stanley's new robo," Loh said.
Logistics
UBS analysts led by Thomas Wadewitz and Eric J. Sheridan said in a March 9 note to investors that Amazon would continue to put pressure on the likes of UPS and FedEx.
First, by investing in its own logistics networks, Amazon saves around $1 billion per year, according to the note. That's money that could have gone to rival logistics providers. And the rollout of Shipping with Amazon in Los Angeles hints at longer-term competition with these providers.
"With their 'Shipping with Amazon' offering for 3P sellers, the company appears to be planting the seed for offering logistics capabilities to unrelated third- parties (experts believed ~8-10 years out before scaled)."
Separately, Morgan Stanley analysts led by Adam Jonas noted the impact Amazon could have on Tesla's aspirations in trucking. He said in a March 9 note:
"AMZN has a vested interest in taking the marginal cost of transportation to its lowest possible level. Look no further than AMZN's 'fulfillment' and 'shipping' expense line items in its income statement. In aggregate, fulfillment and shipping was $46bn in 2017, and Morgan Stanley Internet Analyst Brian Nowak expects it to reach $64bn in 2018 and $291bn by 2027. We're in no position to say whether AMZN would be a partner or a potential competitor to Tesla in the area of transport, trucking, and logistics, but we point out the scale that large e-commerce players can bring, which could lead to surprisingly deflationary long-term trends in some of Tesla's core initiatives."
Online travel
Amazon has tried to enter the online travel market a couple of times without success. And while there's no obvious sign that Amazon's going to try again, according to Morgan Stanley analysts led by Brian Nowak, the size of the opportunity is significant.
Nowak said:
"The online travel industry is built on ad spend efficiency and conversion...and AMZN's platform of 300mn+ estimated buyers and its entrenched position in consumers' lives lay a foundation to compete in online travel. Further, AMZN's focus on selection/service, pricing, and frictionless payment that drive conversion and stronger user economics also translate directly to travel. Our rough ad efficiency analysis (ad spend/transaction) speaks to AMZN's ability to drive repeat/direct traffic...as its estimated $0.75 ad spend/transaction is a fraction of what BKNG/EXPE spend."
Nowak and team believe an Amazon entry into online travel booking could generate $600 million in annual operating profit in a conservative scenario, and $1.5 billion in a more bullish scenario.
"We argue that a robust hotel selection combined with AMZN's ability to use data/machine learning/personalization would change travel consumer behavior and drive adoption," the note said. "The integration of the Amazon Prime Rewards credit card and 5% cash back would likely accelerate it."
Healthcare
Amazon's ambitions in healthcare have become more apparent over the last year, leading to speculation about what the company might do if it got into the prescription drug business.
One potential victim of such a move, according to Bernstein analyst Lance Wilkes, is Express Scripts. With Express Scripts now due to be acquired in a $67 billion deal by Cigna, there's a chance Amazon will partner with UnitedHealth Group, Wilkes said.
Responding to the Cigna-Express Scripts deal, he said:
"We would view this as increasing the likelihood of UNH and Amazon partnering with Amazon entering
The home
Amazon is acquiring Ring, a startup that specializes in smart-camera-equipped doorbells. That could help give Amazon another connection to consumers' homes, with Ring meeting arrivals at the door, Prime beaming movies and shows to the TV in the living room, music in the kitchen playing through an Echo speaker, and Alexa acting as an audio assistant. It also delivers a high-tech pipeline that delivers retail goods and groceries straight to consumers.
"The trifecta of Alexa, Echo, and Prime should enable Amazon to further penetrate the consumer, expand Prime membership and retail spending patterns, while widening the company's consumer competitive moat with the Ring acquisition putting further fuel in this smart home engine for Amazon," GBH Insights analyst Daniel Ives wrote in a note to investors.