For sophisticated investors, analyzing a potential investment involves a forecast / prospectus that not only lists current cash-flows and profitability, but also market penetration. Understanding how large of a share a specific company has in their space is a great way to figure out the value of a company in its present form, as well as its future potential value. A small company in a big market might be work more than a big company in a small market.
To grab market-share, e-commerce giants like Amazon (NASDAQ:AMZN) and Alibaba (NYSE:BABA) have figured out ways to exceed customer expectations in the information presented on their site, the competitive offering between suppliers to keep pricing low and extensive discounting used to drive their advertising campaigns.
E-Commerce is an exciting market to analyze because it’s massive and reports indicate global online shopping will experience 50% growth by 2018. So companies that have established a foothold in the broader e-commerce market are way more exciting than companies that have an established footprint in a single market segment (i.e. the online retailers selling goods through Amazon).
Retailers Turn Brick and Mortar into an Asset
Walmart (NYSE:WMT) recently announced they would be shuttering more than 260 locations and pairing back their 24 hour supercenters. Speculation last year was that Walmart (WMT) had simply grown beyond the market and would have to settle for maintaining marketshare as a win, instead of chasing growth. But alas, there’s a frontier that analysts largely undervalued; their online presence. WalMart began pushing their “site-to-store” program a few years ago, and Walmart is in a unique position to leverage extremely low prices with instant gratification.
One major concern that had previously hounded online retailers was online payment security. Unfortunately it appears that this is no longer an issue isolated to online vendors, as brick and mortar locations have been hit with card skimmers and other hacks designed to access customer data. While recent hacks of physical locations is a problem, for online retailers it’s actually helped them by lowering the bar for expectations of consumer banking security. The well-trusted brands like PayPal (NASDAQ:PYPL) have done an excellent job of improving customer confidence in online transactions.
With many of the online shopping concerns put to bed, Amazon (AMZN) is rushing to rollout same-day delivery in major markets, but the footprint only covers some of the major metropolitan areas around the country. Walmart (WMT) has the existing brick and mortar network of stores blanketing the country, ready to fulfill online orders. While their operating income has decreased year over year for the past few years, they’ve invested heavily in creating an online presence that in my opinion is beginning to rival Amazon (AMZN).
The $2 billion investment that Walmart is making in its ecommerce muscle might be the secret recipe for Walmart’s continued growth, or it could fall flat. At this stage, it’s still a gamble for investors to see if the largest retailer in the world can snatch market share from Amazon (AMZN) and other brick and mortar stores focusing on their online presence with similar strategies (cough, cough Best Buy (NYSE:BBY) and Target (NYSE:TGT)).
3rd Party Promotion Aggregators
While pay-per-click (PPC) advertising has proven to be incredibly profitable for Alphabet (NASDAQ:GOOG), it’s fundamentally changed the way advertisers penetrate their online market. The next iteration seems to be sites that list with no deposit bonus from various companies in the same market. The success of Groupon (NASDAQ:GRPN) in aggregating retailer promotions in a simple to access list has proven the concept. Now, smaller companies are jumping into the market and securing their niche areas with aggressive SEO marketing and exhaustive online directories of promotions hyper-relevant to their audience.