Online retailing giant Amazon.com (NASDAQ:AMZN) recently announced that it is planning to invest $2 billion (INR12,000 crore) to expand its operations in India.
The news comes on the heels of the recent announcement by Flipkart, India's largest e-tailer, to raise funds worth $1 billion, further heating up the competition.
Amazon stated that India is a fast growing e-Commerce market which offers ample expansion opportunities. The additional investment will support its online retail business and enhance the customer and seller experience in the country.
Amazon forayed into the Indian market in Feb 2012 with the launch of Junglee.com, a site which allows customers to compare prices online and read customer reviews but not purchase items directly.
In Jun 2013, Amazon launched its online marketplace in India where it sells books, films, TV shows, mobile phones and cameras among other items through its website Amazon.in. Seeing the overwhelming response in India, Amazon plans to further increase its investments in India and gain from the country’s rapidly-growing online retail market.
According to the global management consulting firm Boston Consulting Group (BCG), India is the third largest country after U.S. and China in terms of Internet users and is now on the verge of a digital revolution. The firm expects Internet users in India to increase threefold from 120 million in 2011 to 330 million by 2016.
According to BCG, India is, however, far behind other countries like China and the United States in terms of online shopping. Nevertheless, given the Internet-savvy population, BCG predicts that there is room for further growth.
Naturally, established U.S.-based e-Commerce players like Amazon will try to make India the future e-Commerce hub. Recently, the company announced its plan to build five more fulfillment centers in India, bringing the total number of large warehouses to seven. These warehouses help online retailers to store products and handle shipments and returns quickly.
With the expansion of Amazon, we can expect more fulfillment warehouses to serve major Indian metropolitan areas.
As Amazon is way ahead of the other online retailers due to its product selection, pricing, deals and platforms, the company could give strong competition to local players, primarily Flipkart. The company, in our view, is performing true to its form recording revenue growth and generating significant cash flow quarter upon quarter (discounting seasonal variations).
However, uncertainty regarding its investment plans and the probability of incurring losses in the near term keep us on the periphery regarding the shares.
Amazon currently has a Zacks Rank #5 (Strong Sell). Stocks that have been performing well and are worth considering include E-Commerce China Dangdang (NYSE:DANG), Facebook (NASDAQ:FB) and Agilent Technologies (NYSE:A), all carrying a Zacks Rank #2 (Buy).