The Amazon Effect

Amazon is, and has been, transforming the way we do business.  They have been doing this for years.  At the core of this transformation is what I will say is the Online World.  Yes it is a generalization, but from being able to buy books online to a cloud service provider to a mobile payment platform and even a one click buy it now system to most recently high profile deals with NIKE, SEARS, and Wholefoods; Amazon is transforming the way we do business from traditional brick and mortar to online.

According to Millennial Marketing, Amazon rates highest in satisfaction and experience not only with Millennials, but across other generations because of “its consistent ability to reduce friction in the consumer journey and stay at the forefront of market innovation.”

It even beats out other brand names such as Apple and Netflix in customer satisfaction and both Apple and Netflix do an excellent job with online marketing and innovation.

And how has practically the whole retail sector, and investors, reacted?

The retail sector has taken a nose dive.  Both investors and publicly traded companies have stuck their heads in the ground and proclaimed that Amazon is taking over the world and the end is near.

Grocery stores such as Kroger and even Walmart took a dive when Amazon bought Whole Foods.

Blue Apron IPO took a beating because Amazon now has a potentially huge food delivery network.

Home Depot and other similar stores took a dive when Amazon agreed to sell SEARS Appliances.

Even NIKE has agreed to add Amazon as a delivery channel for their product.  But NIKE is smarter than some of the other retailers.  Part of their agreement is for Amazon to crack down on fake NIKE knock offs.  Not only do these cheap imitators take revenue away from NIKE, but they also damage the NIKE Brand and the NIKE reputation.  So the NIKE deal with Amazon is actually a good thing for them.

Home Depot does sell appliances.  So does Lowes and Best Buy.  HHGregg went out of business because they failed to adapt and could not compete.  But stores like Home Depot and Best Buy are more than just appliances and they happen to have good online presence and customer loyalty.  A fellow blogger recently wrote about this here.  Check it out.

I think the entire retail sector has over reacted and the recent Amazon effect on the retail industry has created some good potential bargains.

The key to retail success today is how well do you market to and retain the mobile online consumer?

A company basically has three options.

  • Agree to be bought out by Amazon.
  • Develop a successful one stop shop and buy mobile campaign and customer loyalty program similar to Amazon.
  • Or join Amazon to make your product and your brand stronger and more available to the online world making it easier to buy.

I’ve already mentioned how NIKE has taken advantage of Amazon.  Here is another company which I have written about in the past and has done remarkably well recently.

GRUBHUB.

They make online ordering, and reordering, quick, simple and easy.  It fits the millennial mobile mode of online shopping perfectly.

However, on the surface, their business could appear to be threatened by Amazons move into the food and food delivery business much like Blue Aprons.   But they too have “joined” Amazon in a very interesting way.

You can use Alexa to order food from GRUBHUB.  They have taken advantage of the Amazon effect and incorporated it into their business model with hands free ordering.   This is not without possible risk.

Amazon has been accused of poaching sales from retailers.

“A study by Upstream Commerce, a retail intelligence firm that tracks pricing, suggests that Amazon will use the pricing data from outside merchants who sell through it to ultimately compete with them.  In women’s apparel, 25 percent of the top products initially offered by marketplace vendors were sold by Amazon within 12 weeks, according to the report.”

Other retailers have directly and indirectly acknowledge “competition” as a future risk and as a result, many good quarterly reports have sent stock prices down instead of up solely because of this “competition” in the market.

GRUBHUB reports this week.  They had an outstanding report three months ago.  It will be interesting to see if the Amazon effect is viewed as a boost or a bust for their business.

Disclaimer:  This post is meant for informational and conversational purposes only.  It should not be viewed as a recommendation to buy a particular stock or fund.  As always, please do your own additional research before buying stocks.

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Will Prime Day Be A Good Day For Amazon Stock?

What is Prime Day?

Amazon started Prime Day in 2015.  It is typically a one day special event of deals and discounts on just about everything available to amazon prime members. This year, It will be held July 11th.

However, as it is with most special commercial celebrations, and yes – Prime Day was started to celebrate the anniversary of Amazon, this year Amazon Prime Day starts at 6pm the day before, July 10th.

Of course the real reason for Prime Day is to generate more Prime memberships, to build a base of consistently returning customers and, therefore, reoccurring revenue. Amazon is even expanding their event to more international customers to the count of 13 countries around the world.
Many consumers will use this day to test Amazon’s Prime service, and many of those customers will remain Prime members once their trial membership is done.

Studies have shown that Prime customers spend more than twice what nonmembers do, so it’s no wonder Amazon is trying to spread the Prime love as much as it can.

I’m sure Jeff Bezos would say it is a “Win + Win” deal.

How popular is it really?

Amazon doesn’t disclose precise numbers, but some analysts estimate that Prime Day 2016 may have generated $525 million in sales for Amazon, up 26 percent from Amazon’s projected sales of $415 million in 2015.

According to Amazon, the company sold more than 90,000 TVs, over 1 million pairs of shoes, 200,000+ headphones, 23,000+ iRobot Roombas, and more than 14,000 Lenovo laptops on Prime Day alone. That beats the number of sales the retailer generated on Black Friday, which for most retailers is considered to be the biggest shopping day of the year.

How easy is it to find deals, shop and buy?

This year, with the added global access and even greater push for trial access to Prime, the Amazon App (which is always free) and Amazon gadgets (Echo – Echo Dot w/Alexa, Kindle, Audible, Dash, etc) there promises to be yet more Prime Day records broken. Amazon will be running specials not only online but through their mobile channels (Echo, Kindle, Audible) with specific deals targeted for users of these devices.

How easy is it? Just ask Jeff Bezos . . .

Just kidding, but it is getting easier and easier to purchase not only what you need for day to day living but for all those impulsive moments as well.

The power of ecommerce has even forced the worlds largest sport and leisure shoe manufacturer, NIKE, to re-think their strategy and start selling directly to consumers thru Amazon and Instagram. It’s an online world and most consumers have mobile devices which they care with them for instant online access.

Mobile ecommerce only makes sense.

I wonder if NIKE will be “online” in time for Prime Day? As of this writing (July 4th) I did not see their direct link listed on Amazon yet.

Are there Prime Day issues?

Yes, with this popularity there have been issues with finding good deals on products you actually want as well as general supply and demand. There have been many instances of consumers complaining that many of the special deals are not always on things they want, or are of cheaper quality than they expect, and for the items they are searching for, difficult to find and then when they do find them the deal is either over or sold out.

This year Amazon is helping you out by suggesting to download their app from which you can look up the schedule of daily deals and place a watch on the ones you want. This way the app will alert you when the special is about to start.

You can even download an Amazon Assistant to your desktop to help you stay up to date on your wish lists and orders.

How does Amazon stock react to Prime Day?

This one is a bit more difficult to answer. For one, this is just the third year that Amazon has hosted Prime Day. And two data points, or data sets, does not a pattern make – other than a straight line.
However, in 2015 the stock price increased the week before and kept increasing the week after.

In 2016, the stock price increased the week before but then went down the following weeks.

So what will happen this year?

Lately tech stocks, including Amazon, have been beaten down by the market. Will Amazon’s stock price continue its downward trend or will prime day provide the opportunity for investors to look at Amazon stock as another online bargain and reverse the trend?

My personal opinion is that Amazon, as well as many other tech stocks, has a bit more to fall. There may be a few fake reversals but to date the stock is only down 5%. Hardly the correction needed to inspire investors to scoop up a bargain.

What are your thoughts?

Time Travel

I don’t usually do a lot of traveling for work, but lately I have been playing the role of part time road warrior.  All of my travel has involved long flights to the west coast.  Strangely, jetlag doesn’t bother me too much.  The biggest issue I have with the time difference is the fact that the markets open just when I am waking up and close by 1 pm.  Which is often one of the busiest or most time crunched periods of the day for me.  I’m used to reading up on investment news while having a leisurely breakfast, having all day to see if I get any alerts, or not, for possible trades at the end of the day.  This traveling between time zones has totally thrown off my routine, changed the way I follow the markets and even the way I post on my site.  I am using the wordpress android app for the very first time.  

My question to readers is this.  Are the any road warriors out there who actively follow the market and their investments?  If so, what tips, tricks and tiolsbof the trade do you have in your arsenal?

Tracking The IBD 50

I love looking at data, discovering new trends, and finding hidden cause and effect relationships.  That is probably why I like spending hours analyzing computer event and security logs.   I also tend to do the same thing researching the stock market, especially when I notice a dramatic change.  In this case, I noticed a lot of new stocks listed on the weekly IBD 50 list.  So, I started something that I have been meaning to do for quite some time but never really got around to it.  Until now.

Tracking the IBD 50 list.

We all know the only state the market stays in is a constant state of change.  Prices fluctuate every day, every minute.  And it stands to reason that any watch list will do the same, though not necessarily on a daily basis.  My “gut” was telling me that the IBD50 list had been fairly stable and now quite a few new members had joined the list.  Conversely, this meant quite a few had fallen off of the list.  Of course I wanted to see the evidence for myself.  So I sat down and started plotting out the last two months or so of reports.

This is what I came up with.

Listed below is the stock symbol, IBD’s Group Classification, and the week the stock appeared / or not on the list.  If it appeared on the list the number is the ranking IBD gave it from 1 – 50 with 1 being the best of the best.  If it did not appear on the list then that week is left blank.

Now I have not had a chance, nor enough back testing evidence, to find out if these changes are due to quarterly reports, market conditions, changes in market cycles, investor/consumer sentiment, hype, fear, or some combination of all of the above.   But at least I seem to have enough proof that my gut was right.

Breaking it down into adds, drops, returns (on,off,back on again), and stay(remains on the list each and every week) and by sectors we get the following.  This was an attempt to see which sectors are strong and remain on the list, weak and dropping off, and gaining by being added to the list.

I’ll be tracking this further as time goes by and reposting any additional insights but I thought I would get it out there for those of you who might be interested.

I Can’t Complain

. . . but sometimes I still do.

–   Joe Walsh

Why do people complain even when things are going well?  Is it because of what could have been?   Is it because they feel that they have missed out on something even better.

“What could have been?”

In regards to investing, most people have rules by which we use to govern when to buy and when to sell.

Sometimes these rules, designed to protect us, or rather our capital / profits, can be seen as preventing us from earning even greater returns.

Some personal examples from the past month or so for me are . . .

OLED:

  • Bought 200 shares in April at $81.90.
  • Soon after OLED went on a nice 10% run (~$1800) but leveled off the week before earnings.
  • Happy with my quick profit, I sold 100 shares.  Still up ~ $900.00
  • But then I started thinking about all the “what if” scenarios around earnings.
  • Long story short, I bought a May 19 $95 call for $2.70 and sold an $85 put to finance it.
  • The stock reported record blow-out earnings and revisions and jumped 22%.
  • My remaining equity position made an additional $1900.
  • My out of the money call ~$900. Oh and the premium for the put brought that up to ~ $1200.
  • Yes, there was that voice saying I should have just kept my original investment.  Even though I was up a good $3000.

Greed is a terrible emotion.

EA:

  • I actually liked both EA and ATVI but EA was reporting after ATVI and had really good (cheap) options.  So I bought 3 May 12 $96 calls of EA before ATVI reported for $1.8 each.
  • Basically nothing happened.  The stock didn’t move much at all as a result of ATVI’s earnings.
  • So I sold 2 of the 3 for a very, very measly profit right before EA earnings report.
  • The next day those calls were worth somewhat north of $1100 each.
  • Who knew EA was going to pop 12% on earnings.
  • Certainly not the market.  They had options priced in for less than half that amount of a move.
  • Again, that little voice in the back of my head gave a very vocal 2200 cough.
  • Even though I was in the money by nearly another $1000 or so.

This week presents another “alternative” like minded play on earnings.  Similar to EA and ATVI.

Not that I am predicting a double digit return but the price is right.  IMHO.

Home Depot (HD) reports on the 16th.

Lowes (LOW) reports on the 24th.

The retail sector has taken a beating lately thanks to the likes of Macy’s and other big name brick and mortar retailers.  As a result LOW stock has fallen along with the sector.  HD has actually held up quite well.

One could very easily be tempted to buy HD before earnings because they are more directly related to the housing industry which has experienced remarkable strength lately.  LOW falls into this same category.

So even though they are “retail” companies.  They both play to a fairly strong housing sector.

Why am I looking at LOW instead of HD.  Because their weekly option premiums and volatility are significantly lower than that of HD because HD reports this week and LOW does not.  If HD has a really strong quarterly report and forward looking estimate, the market could very easily drive up the price of LOW before they report a week later.

Indeed, if one looks at the numbers, the market is already pricing in the moves for each companies reports.

HD reports on the 16th and options are reasonably priced with the market pricing in approximately a 3.3% price move based on May 19th expiration date.

LOW reports a week later on the 24th and options are even more reasonably priced with an approximate 2.3% price move for this weeks May  19th expiration.

But all those numbers for LOW’s more than double for the “after” report expiration date for May 26th.

What do you think?

Would you invest in both or play one off of the other?