Amazon benefitting from an accelerated shift to eCommerce, says UBS

UBS analysts led by Eric Sheridan reiterated their ‘buy’ rating and $3,000 price target on shares of Amazon, on the premise that there are several factors pointing to more room for the e-commerce giant to grow. Although COVID-19 will impact the company’s margins for 2020, long-terms drivers are still intact. The Final Round panel discusses the call.

Video Transcript

MYLES UDLAND: Time now for our Call of the Day. And today, we've got a call out of UBS and their latest on Amazon. So the firm has a "buy" rating and a $3,000 price target on shares. And so on the one hand, thank you, Amazon, obviously has done very well during this coronavirus period. During the shelter in place, everyone is buying a lot more stuff online now. Interestingly, we've talked a lot about how the experience on Amazon is maybe degrading a bit over time, has certainly been uneven I think for all of us over the last couple of months.

But you know, Seana Smith, this note is really just about I think that the meme that has become so popular. I'm not so sure what it really means, but this whole "decade of change in one year" idea-- I mean, UBS' essential contention here is that people are buying incrementally more number of stuff and more amount of stuff-- that grammar is not correct-- on Amazon, and they're not going to stop doing that when all this is over.

- Yeah, you're totally right. I mean, there's not really anything groundbreaking I think in this note. But it does just highlight the fact that there are changes underway and a lot of the changes are being accelerated because of the COVID-19 outbreak. And there's no denying that is happening in retail and you can argue, probably, that it's having a bigger impact on retail than it is almost any other sector out there. I mean, people simply are not going in stores, they're sourcing more of their products online. Obviously, Amazon then is positioned to be a winner in all this.

But I think we also have to be cautious in just making that argument. We were talking about on Friday, just the fact that people simply are not spending as much. US savings rate, they hit a record at 33% because Americans are now stockpiling cash. They are curbing their spending, they're not going into stores or they're not buying as many products online. So while Amazon might be a long term winner because they are attracting more people on their site and once people do start spending more, they are more likely to spend at Amazon, I'm not sure that they are a real short term winner.

You can say that they're actually benefiting at least over the next couple of months because of coronavirus because I think that people that have spent on their site in the past maybe have hurt some of their spending and simply aren't spending as much as maybe they historically do.

DAN ROBERTS: And, guys, can I just say about this note, you know, other than the actual price target, nothing in here is really new. And in fact, some of this, we could have been reading seven years ago. I mean, "Amazon is benefiting from an accelerated shift to e-commerce" Well, yes, of course it is. Now, let's also make sure that we name it isn't just Amazon. I mean, Target and Walmart have had big e-commerce gains. That was sure before coronavirus and they've done very well, reportedly and based on their numbers, during this time. Now, of course, they still have the brick and mortar presence. But it is interesting.

I mean, it can't all be true, right? It can't be true that Amazon is particularly well-situated because of the shifting e-commerce and the shift away from brick and mortar. But also, Walmart is well situated because it's doing great with e-commerce but it also still has loyalty at its brick and mortar stores. But that's what we hear, right? That both are in a great place and that Walmart, even though it's lazy e-commerce really caught up, I guess I just think, you know, there was a time-- what? Two months ago, and it feels like forever ago, when we all noticed that because of the essential item labels, various things we ordered on Amazon, if they weren't those essentials, we're taking a long time to come. You know, they were taking, what? A whole three weeks. And now it's starting to get back to normal.

But in general, I just think, if you are a person who is obsessed with buying things on Amazon and that's your first go-to, is you go right to Amazon and you can buy everything on there. That's still the case and it's been the case during quarantine and it'll be the case after this time. So, yeah, I mean, I just don't really see any reason not to be bullish on Amazon for the next very long time. Of course, these things are kind of self-evident.

MELODY HAHM: Yeah, and, Dan, to your point, folks who obsessively buy things on Amazon, we know Jen Rogers was a self-proclaimed recovering Amazon addict. And just thinking about how the e-commerce sector is now actually piecemeal. I think that's been revealed during COVID. Because honestly, pre-pandemic, we would just talk about e-commerce as Amazon. Like, we would say, OK, Walmart is doing better on Walmart.com, Jet.com-- rest in peace, Jet.com. But more and more, I think it's been very clear that, yes, people do still buy one-off items from Target and from Macy's and from a lot of beleaguered retail brands.

I mean, even going into the pandemic, if you look at New York City alone, 25% of commercial real estate was unoccupied. Think about what that number must be now, think about what that number will look like in five years. I think the acceleration of folks actually who went to the store and did pick up a few things here and there to buying everything online, that behavior, I think, is very clear that it will be sticky. Just because some of those stores that they used to go to and that they enjoy going to will not be there anymore. It's not actually for lack of desire, I think it's lack of supply and lack of options.

So yes, I do think, yes, bullish call on Amazon. But the biggest and most interesting thing to me during this pandemic has been seeing that, yes, it's not just a one stop shop, you can actually kind of cobble together your e-commerce strategy as a consumer.

DAN ROBERTS: Well, and just say, anecdotally, guys, I'd be curious what the rest of you say, but it's interesting what Melody says about whether we shop online in a piecemeal fashion. Because I think it's very, very hard to build up loyalty for e-commerce giants other than Amazon. I think if your default is Amazon, that remains your default. So you know, let's use my own example. I bought my wife a pair of sneakers. I knew exactly the pair she wanted-- this was very recently-- for her birthday. And I hadn't bought anything on Zappos I noticed since 2011. Now Zappos, of course, owned by Amazon. And I go to find them and turned out, Zappos was who had them. And then I said, "log in." and I was like, [GROANS] another log in. But then it said, oh, you can log in with Amazon. Like, ah, thank I can just log in with Amazon and I was so delighted. And in the end, they didn't fit so we ended up getting them to ShopBop. And we had a good experience with ShopBop.

But maybe it's just me, I'm not going to now seek out ShopBop in the future. I'm not going to remember this, I'm not going to go to that site. My start point is still Amazon and I'm sure many would say, well, that sucks. That's so unfortunate. That's a sign of the times. You know, the end for specific retailers. But that is just how big and how effective the company has gotten to. Is that, I just think, oh, I need something. I know I need to order line. Well, first, let me see if it's on Amazon.

MELODY HAHM: And, Dan, guess what? ShopBop is owned by Amazon.

DAN ROBERTS: [LAUGHTER] There you go.

MELODY HAHM: So you just answered your own question. Yeah, I think the acquisition happened, like, 14 years ago. But I was very stealthy and has operated as its own subsidiary.

MYLES UDLAND: And this all coming from a guy who doesn't even buy books on Amazon. So you know, he does have loyalty somewhere.

MELODY HAHM: Right.

MYLES UDLAND: He does care about [INAUDIBLE] purchases.

DAN ROBERTS: Everything else. Everything else.

MYLES UDLAND: Everything but.