Considering the rapid trajectory of growth of Amazon.com, Inc over the past few years, many people I speak to believe that they’re likely currently overvalued and peaking on successive aggressive growth tactics.
My current position is long on Amazon, but for reasons differing from the majority of others I know holding long also. While I believe Amazon has shown great success as an eCommerce retailer (and I don’t think that business is going anywhere), I think that it is likely that their growth here will stagnate as they progressively dominate more of the market.
I think they have some interesting developments in the pipeline in this area (autonomous drone delivery, same-day delivery, drive to become a physical retailer) but still fundamentally believe their eCommerce business will stagnate as they grow.
So why long, you wonder? Simple, I believe Amazon are essentially now a utility company for the tech industry due to their huge presence of AWS [Amazon Web Hosting]. A recent AWS outage on the S3 realm (primarily) exposed how significantly ‘the Internet’ in general is now dependant on AWS hosting capabilities. There are other viable competitors (Azure, Google Compute Cloud) but AWS is dominating the market currently, and in all honesty I would adopt similar thinking to justify long positions in both Microsoft and Alphabet for the same reasoning.
By securing themselves as a utility provider for the tech industry, Amazon is becoming a necessary middle-man for the majority of tech startups – providing service to numerous unicorn valuation tech startups – and that’s even ignoring the significant services they provide to well-established blue chip stock companies, all of whom utilise technology as a vital underpinning of their non-tech businesses.
Sure, if I’m right, this position will take a while to mature, but if I’m right then the positioning will not be dissimilar to telecoms stocks in the mid 90s – except for hopefully, this time, no global market crash…
Snap Inc, parent company of Snapchat, IPO’d last week and is currently (at the time of writing) sitting at a market cap of $26.09B. Following great success of a number of other significant social media giants (eg Facebook, Twitter) on the face of it Snapchat seems to be following in these steps to become another social media behemoth of the stock exchange.
At the moment Snap is a hype stock, so it’s incredibly difficult to predict it’s swing on a daily and intra-weekly basis. However, I think the sensible position (at least looking months or low years) is short – and my instincts say that Snap will probably tumble to a sub $20B market cap sometime within the next few months (by Q3 2017 latest) and never return above current levels.
Their biggest issue I believe is fundamental, their revenue model is dependant on advertising and by nature Snapchat is ephemeral. In contrast to Facebook, who essentially managed to create a product revolving around how much personal data you can give them, Snapchat’s messaging is ephemeral and not suited towards data collection. I believe the long-term product viability would have gained significantly from the original rejected Facebook acquisition offer (although, evidently, they made the right decision by rejecting it).
Ultimately, this means that advertising on Snapchat lacks targetability and is primarily geared towards branding advertisement. There’s nothing inherently wrong with this, many huge brands are willing to dump serious money into branding advertisements, but it also means that Snapchat only holds value while it is a ‘popular brand’. Historically, especially within the key target demographic of Snapchat (Generation Z, young Millennials), brands seriously struggle to ‘remain popular’ for people in this age range.
There are also a number of more minor compounding issues but I believe that these issues will seriously damage the long-term viability of Snap Inc.