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Amazon [AMZN] share price bolstered by UK delivery growth amid PR headaches

The ongoing tabloid focus on Jeff Bezos’ private life – his divorce from wife Mackenzie, his affair and his bitter feud with US newspaper the National Enquirer – has presumably been a headache for his business’s public relations department. But despite this, Amazon’s [AMZN] stock is only slightly down on where it was when the first revelations emerged. It’s opening price on 28 February stood at $1,635.99, down just 1% from 9 January’s opening price of $1,652.98.Powered by CMC Markets, as at 01 March 2019

 

Analysts don’t appear to see this slight decline as a cause for concern. One of Amazon’s most vocal supporters was CNBC’s Jim Cramer; his assertion that selling stocks in Amazon would be “really stupid” was widely mirrored in the industry. 

Evercore ISI internet analyst Anthony DiClemente meanwhile told CNBC: “I don't think the allegations have a direct line into the fundamentals of Amazon. Certainly from a public relations standpoint, I don't think it's ideal. When you look at the fundamentals, it's hard to imagine it will have a negative impact.”

Data from the Pivotal Research Group forecasts that Amazon’s share price could rise by more than 20% this year. If those predictions come to fruition, it may go some way to calming investors’ nerves about Amazon’s spending, after doubling the amount of Government debt it owns to $11.8bn in 2018.

Despite a modest start to 2019 by Amazon’s standards, analysts still consider the stock gold dust.

 

Market cap$805.49bn
PE ratio (TTM)81.42
EPS (TTM)20.14

Amazon stock vitals, Yahoo finance, as at 1 March 2019

 

Rosy state of affairs in UK delivery

One area in which Amazon is showing strength is the UK delivery market, at a time when its beleaguered competitor, Royal Mail Group [RMG], is receiving concerning news from a handful of the world’s largest investment banks.

Swiss investment bank UBS cut its price target for Royal Mail by 20.33%, from 354p to 282p, last month. Meanwhile, Deutsche Bank rated its price target at 180p, implying a 35% slump from Royal Mail’s current stock price 278.00p (at the time of writing).

Amazon now boasts a 7% share in the UK delivery market, up from 3% in 2013, and everything suggests that this figure is likely to grow. As Deutsche Bank, UBS and fellow investor Liberum all pointed to, Royal Mail must cut costs of its parcel deliveries if it’s to compete in the long-term with Amazon. At present, Royal Mail delivers items weighing less than 2kg at a better cost than its rival, however it’s less cost effective than Amazon for parcels above that threshold. With a consistent decline in the number of lightweight items such as letters being sent every year, Amazon has the upper hand in the battle for the UK delivery market.

7%

Amazon's share in the UK delivery market

 

The Arlington project

One inescapable piece of news that emerged on 14 February had nothing to do with Bezos’ love life. Amazon reversed its decision to build its second headquarters in Long Island City after a wave of opposition to the project and the appointment of Michael Gianaris, New York’s state senator and a critic of the project, to the Public Authorities Control Board, which can influence the terms of the project. 
Amazon had negotiated a deal that would have seen it get as much as $3bn in tax incentives. It will go ahead with its previously planned headquarters in Arlington, Virginia, however, and the company said in a statement that it will not be seeking an alternative to the New York project.

The announcement was met with shares dipping as low as $1,616 on Thursday afternoon before a brief bounce-back to $1,635.67 at the day’s close. The stock has climbed a marginal 1.12% since the news broke.

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