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The Zacks Analyst Blog Highlights: Amazon, Disney, Cisco, Apple and Walmart

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For Immediate Release

Chicago, IL – November 29, 2018 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Amazon (AMZN - Free Report) , Disney (DIS - Free Report) , Cisco (CSCO - Free Report) , Apple (AAPL - Free Report) and Walmart (WMT - Free Report) .

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Here are highlights from Wednesday’s Analyst Blog:

Amazon Roundup: Sports Bidding, Worker Protest, Amazon Go & More

It has been a busy month for Amazon with its new headquarters, ad market share gains, deals and finally its bidding for Fox’s sports channels. Here are the highlights.

Amazon Bidding for Sports Assets

Disney’s acquisition of 21st Century Fox has created an interesting opening for tech players and Amazon is set to make the most of it. Disney needs to offload Fox’s regional sports networks (RSNs) as a pre-condition for DOJ approval, so it is auctioning the assets. And Amazon, along with some private equity firms (Apollo Global, KKR and Blackstone) and broadcasters TEGNA and Sinclair Broadcast Group participated in the first round of bidding.

The RSNs include YES Network (New York Yankees games broadcaster), as well as other networks, broadcasting a range of professional league games, including Major League Baseball (MLB), the National Basketball Association (NBA) and the National Hockey League (NHL).

Amazon entering the picture can push up prices, which is what Disney needs, but selling to the company would indirectly hand over the rights to future major league games (through acquisition of the rights owners) on a platter, increasing competition for Disney’s own ESPN. What the deal could be worth to Disney (and Amazon) is anybody’s guess but media reports suggest the assets are worth $20 billion.

If Amazon succeeds, it could phase out the networks while making the games exclusive to Prime subscribers. This would hasten cord cutting and hugely boost Prime subscriptions, apart from giving it a really big boost in the video advertising space.

Another theory is that Fox will enter the bidding process in the second round because it needs the live TV content to stay relevant.

Black Friday Protest

Black Friday protests in Europe have become more or less routine. This year, they were staged in Germany, Spain and Britain, with workers demanding healthier and safer working conditions, in addition to better pay.

In Germany, around 620 workers joined the strike and the rest were able to carry out operations without disruption.

Amazon said that the Spanish unions’ claim that 90% of workers joined the strike was a gross exaggeration and that most workers turned up.  

Amazon said its pay was industry standard and its work conditions in terms of safety and health were better than industry standard.

Cisco Deal

Amazon has signed on Cisco, which already has similar deals with Google and Microsoft, to create a hybrid cloud environment on AWS. Amazon is by far the largest cloud infrastructure provider, but it has focused on a cloud-only approach. Market research suggests that the highest growth in the next few years will be in hybrid cloud environments, i.e. customers willing to move some operations to the cloud while retaining other operations on-premise. 

The companies will be leveraging Kubernetes container technology to move data between Amazon’s cloud and its customers’ infrastructure so applications can run in both.

By virtue of this deal, Cisco will deploy its global partner network to sell its Hybrid Solution for Kubernetes on AWS at $65,000 a year starting in December. It will also offer its hyperconvergence solution (Cisco Container Platform running on Cisco HyperFlexOn AWS for an additional $0.20 per hour for each Amazon EKS cluster) to AWS customers for one, three and five-year contracts. The agreement essentially brings together Cisco networking, security, management and monitoring software and AWS cloud services.

Apple Deal

Google may have distanced itself from Amazon, but Apple is inching closer. And that makes perfect sense because Amazon competes with Google in advertising while Apple has a different model that is dependent on selling hardware (for now). So it doesn’t make sense to ignore the leading online platform with its significant reach all over the world, even if it means that Amazon’s Fire TV and its Prime Video app make it to Apple TV.  

This deal brings MacBook laptops, Beats headphones and Apple Watch to users in the U.S., U.K., France, Germany, Italy, Spain, Japan and India. Unsurprisingly, HomePod, which competes with Amazon’s own Echo smart speakers, isn’t part of the deal.

Amazon Go

Amazon’s goal of taking its cashierless stores to 3,000 locations across the U.S. by 2021 appears to be on track. A recent study by strategic advisory firm Brick Meets Click indicates that the stores are quite popular.

The study found that its Seattle store is generating annualized sales of $2,700 per square foot, more than 5X an average convenience store’s sales of $484 per square foot, according to the National Association of Convenience Stores via bizjournals. What’s more, inventory turnover is around 50X a year, 4-5X that of the average retailer.

Amazon’s success is based on computer vision technologies, but most importantly, the data it has collected to create superior artificial intelligence. That’s why it can price competitively and is also able to put those items on the shelves that are likely to move the fastest, whether they are grab-and-go ready to eat items, groceries or drugs. It’s also why the stores aren’t exactly comparable with either restaurants, or convenience stores, or super markets. They are stores of a kind, carrying what customers in the area are most interested in.   

India Competition Issue

The Competition Commission of India (CCI) has set aside a case brought by the All India Online Vendors Association (AIOVA), a lobby group representing 2,000+ online sellers in India. The AIOVA alleged that online retailers Amazon and Walmart-owned Flipkart offered preferential treatment to seller companies they themselves owned (by discounting goods they owned, thereby penalizing all others. Since the two together accounted for most online sales in India, their actions represented abuse of their dominant positions under section 4 of the Competition Act.  

The regulatory body defined the market as “services provided by online marketplace platforms for selling goods in India” and said that the online distribution model was relatively new and evolving with no clear dominant players. To intervene in its operations could be detrimental to innovation in the space, especially considering the consumer benefits that such markets can provide.

The AIOVA said it would appeal the decision.

Amazon Gaining Ad Revenue Share

According to IAB Internet Advertising Revenue, Amazon is now the third largest ad distributor in the U.S., a market that grew 23% in the first half of 2018 driven by strength in mobile, which grew 42%, social media (up 38%) and video ads (up 35%). Search was up 19%. Amazon "probably added $1 billion in domestic ad revenue" based on ex-Facebook and Google growth, which was 18% (mostly attributed to Amazon).

eMarketer says similarly that Amazon will be the third largest player this year, behind only Google and Facebook but its share will be small at 4.1% compared to Google’s 37.1% and Facebook’s 20.6%. The firm attributes the jump this year to an accounting change, excluding which the ecommerce giant is expected to see 10-12% growth. This will be followed by increases of more than 50% per year through at least 2020 when it will take a 7% share. In 2020, Google’s share is expected to be 35.1% and Facebook’s 20.8%.

Data Breach

Amazon has emailed affected users that their data was inadvertently shared due to a technical error that has since been fixed. It also said that there was no need to change passwords.

Since nothing is known about who received the data and the location of affected users, it’s hard to tell what implications this has for Amazon. The EU would take the matter seriously since it is likely a violation of GDPR and Amazon could be fined there. But the Federal Trade Commission in the U.S. may let the matter rest, since privacy and data protection law is less stringent here.

Amazon likely played down the incident since it happened just heading into the holiday season, but some people feel it should have been more forthcoming with users.

HQ2

Amazon is going to invest $5 billion to split its second headquarters between National Landing in Arlington and the Long Island City neighborhood in New York City. Each facility will spread across 4 million square feet and create over 50,000 jobs at an average pay of $150,000 a year.

Amazon’s presence in these areas is expected to push up wage rates (currently averaging $129,000 in New York City and 116,000 in the Washington, D.C. area), according to Hired. It will also push up real estate prices.

Recommendations

Amazon shares carry a Zacks Rank #3 (Hold). For smarter picks see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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