Morningstar publishes report on Amazon downplaying breakup probability

26 Sep, 2019 12:10
source: 香港奇点财经 Singularity Financial

In the latest Consumer Observer report conducted by Morningstar, the firm believes that an Amazon breakup is a low probability event over the near term.  Below is the press release from Morningstar:

Despite increased calls from politicians to more heavily regulate or even separate large U.S. technology firms, we don’t expect regulatory pressure or other factors to lead to an Amazon breakup in the near future, especially considering the lengthy investigation and appeal process that would accompany such proposals.

Morningstar takes a deep dive into this topic and more in the report, where we revisit the longer-term assumptions behind our discounted cash flow analysis and introduce sum-of-the-parts valuations for each of Amazon’s key business units. Highlights include:

1. Our analysis reveals that AWS and Amazon Advertising are likely being underappreciated by the market. With estimated standalone valuations of $550 billion and $125 billion, respectively, we see AWS and Amazon Advertising as the most misunderstood and underappreciated pieces of the Amazon valuation puzzle.

2. Amazon’s online retail businesses still have margin expansion potential. We expect North American online retail segment margins to reach 5.5% by 2028 (compared to 4.5% in 2018). In our view, Amazon’s online retail businesses are worth $450 billion on a collective basis.

3. Physical stores are complementary to Amazon’s other businesses. We believe Whole Foods and Amazon’s other retail formats help to bring Prime memberships into the physical world and unlock new subscription monetization opportunities. They also help to attract new third-party vendors and offer a differentiated source of customer data.

4. We believe consumers will continue to utilize Amazon during a recessionary environment, and the continued growth of non-retail segments only help to diversify the company. While we’re currently forecasting only a moderation in global consumption trends during 2020, we still believe Amazon is well positioned to outgrow most of its peers over the next several years. We also believe AWS and Amazon Advertising should help to insulate the company during the next cyclical downturn and reinforce the company’s vastly different business mix compared to the 2008-2009 recession.

The report also analyses Amazon’s operations in key markets, including Japan, China, India and Australia in the Asia Pacific region.