Multinational coffeehouse chain Starbucks Corporation (SBUX) collaborated with global e-commerce giant Amazon (AMZN) to launch a one-of-its-kind Starbucks Pickup with Amazon Go store, in New York City Starbucks. The collaboration aims to combine the digital and physical retail experiences.
Starbucks shares gained 1.4% during the pre-market trading session on November 19. (See Starbucks stock chart on TipRanks)
The store will offer a curated selection of customer favorites from both Starbucks Café and Amazon Go’s Just Walk Out Shopping experience.
Details of the New Walk Out StoreThe new location in New York City will serve drinks and cover the rest of Starbucks' menu, as well as a curated assortment of food and beverages in the Amazon Go market, including freshly prepared salads, sandwiches, bakery items, and other snacks options. The store will maintain the same staffing level as any other Starbucks store.
The new store will also have a modernized lounge, including individual workspaces and expanded tables with power outlets and USB ports.
Customers can place an order on the Starbucks app before arriving at the store. Upon arrival, they can check the status of their order on a digital screen and then grab their order directly from a Starbucks barista.
Customers have the option to use a credit card, Amazon Shopping app, or Amazon One palm reader to shop at the Amazon Go market, similar to any other Amazon Go store. They can use Amazon Go’s Just Walk Out technology for a smooth checkout experience.
Together, both companies plan to open 2 more stores in the U.S in 2022.
Management Weighs InKatie Young, SVP of global growth and development at Starbucks, said, “Our goal with this new store concept is to give our customers the ability to choose which experience is right for them as they go through their day, whether it is utilizing the Starbucks and Amazon apps to purchase food and beverages on the go, or deciding to stay in the lounge for the traditional third place experience Starbucks is known for.”
Dilip Kumar, VP of physical retail and technology at Amazon, said, “Customers have enjoyed the effortless shopping experience enabled by our Just Walk Out technology at Amazon Go where they can simply come in, grab something delicious to eat or drink, and just leave and carry on with their day without having to wait in line to pay.”
Wall Street’s TakeThe Wall Street community is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 14 Buys and 8 Holds. The average Starbucks price target of $124.24 implies that the stock has upside potential of 11.6% from current levels.
Starbucks scores an 8 out of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations. Shares have gained about 15% over the past year.
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I am bullish on Amazon (AMZN) due to the company’s overwhelming competitive advantages, solid growth outlook, reasonable valuation level, and unanimous Wall Street bullishness on the stock.
Amazon is an American multinational technology company founded by Jeff Bezos. The company has four business divisions: Ecommerce, Digital Streaming, Cloud Computing, and AI, and is one of the Big Five companies in the American technology industry. (See Analysts’ Top Stocks on TipRanks)
StrengthsAmazon is the provider of the largest online marketplace in the world. The company is one of the most influential economic forces in the world, and is arguably the most valuable brand in the world, worth over $1 trillion.
It is known for disrupting well-established industries through combining mass scale and rapidly innovating with technology. The company is the second-biggest private employer in the U.S.
In 2017, Amazon acquired Whole Foods Market for $13.4 billion, thereby significantly increasing its footprint as a bricks-and-mortar retailer. It has also made additional acquisitions over the years, including Twitch, IMDb, Ring, and Zoox. It is currently in the process of purchasing leading media company, Metro-Goldwyn-Mayer.
Recent ResultsAmazon reported revenue of $110.8 billion, falling short of its expected $111.81 billion for the third quarter of 2021. This is in comparison with $96.15 billion revenue in Q3 of 2020. Amazon’s overall sales saw an increase of 15% year-over-year, reflecting a slowdown from the previous quarter’s growth rate (27%). However, the company was still able to achieve revenue over $100 billion for its fourth consecutive quarter.
The company’s earnings were reported at $6.12 per share as compared to the expected $8.96, and the $12.30 EPS from the same quarter of the previous year.
Amazon’s major online stores reported lower-than-expected sales in the third quarter of 2021, contributing to the slowdown of the company’s overall revenue. In addition, e-commerce sales showed an increase of 3% to $49.94 billion as compared to the third quarter of 2020, missing estimates by $51.53 billion.
The company’s result did get a boost from its Web Services cloud computing platform that saw a significant growth of 39% and reached $16.1 billion. This high-margin division has been outpacing Amazon’s Ecommerce unit. In addition, revenue from Amazon’s other business unit, which predominantly comprises advertising sales, increased by 49% over the last year, keeping in line with the rate in the third quarter of 2020.
In the fourth quarter, Amazon expects to see $140 billion of net sales, which is lower than the $142 billion consensus estimate. The company also reported operating income between breakeven and $3 billion, coming quite short of the $7.2 billion consensus estimate.
Valuation MetricsAmazon’s stock looks reasonably valued right now as its EV to forward EBITDA ratio is 23.8x compared to its five-year average of 23x and its Price to forward Normalized Earnings ratio is 87.69x compared to its five-year average of 101.1x.
Given the company’s competitive advantages, proven track record of innovation, and expectations for 22.1% EBITDA growth in 2021 and 23.6% EBITDA growth in 2022, this valuation looks reasonable.
Wall Street’s TakeFrom Wall Street analysts, Amazon earns a Strong Buy analyst consensus based on 30 unanimous Buy ratings. Additionally, the average Amazon price target of $4,088.17 puts the upside potential at 10.6%.
Summary and ConclusionsAmazon is one of the most dominant companies in the world, and continues to leverage its formidable competitive advantages to drive new avenues of growth.
While the stock does not look dirt cheap here, Wall Street analysts’ unanimous bullishness on the stock and its reasonable valuation multiples make it look promising.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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