Amazon Eyes Expansion into Hims & Hers and Temu Markets. Could this Be a Benevolent Moment to Purchase the Shares?
The primary source of Amazon's (AMZN -0.66%) growth has been its cloud computing division, Amazon Web Services (AWS). However, Amazon isn't resting on its laurels with other business sectors. It's taking aim at two competitors to boost its consumer-driven growth.
Let's delve deeper into these strategies to assess their potential for fostering growth and determine if this is a favorable time to invest in Amazon stock.
Challenging Temu and Shein
In recent years, the rapidly expanding e-commerce app, Temu, owned by China's PDD Holdings (PDD -2.28%), has garnered significant attention due to its affordable dealer offers for a wide range of goods. Similarly, Shein has excelled in the clothing market by providing discounted apparel sourced from Chinese third-party manufacturers.
Responding to this growth, Amazon has unveiled a new app, Amazon Haul, designed to penetrate this space. The app showcases a variety of items at a maximum price of $20, with most items costing less than $10. Like Temu and Shein, items on Amazon Haul will predominantly hail from Chinese vendors.
Free shipping is available for orders exceeding $25, with orders under that threshold costing $3.99. Although Amazon's reputation for swift shipping is well-known, Amazon Haul deliveries are anticipated to take between one to two weeks. Items above $3 can be returned within 15 days.
There's a risk that Amazon Haul might impact its main e-commerce platform. However, Amazon faces competition in this arena, and controversy surrounding Temu and Shein's labor practices and data collection methods has emerged. Amazon claims that it scrutinizes sellers on its platform and is based in the U.S., providing potential selling points for app switchers.
Both Temu and Shein have become popular among young consumers, making Amazon Haul's market entry an intriguing development given potential tariffs that could alter the pricing of these items. Any increase in costs for sites like Temu and Shein would likely benefit Amazon's primary site. With the launch of Amazon Haul, the company can hedge its bets.
Telehealth
Amazon has also set its sights on burgeoning telehealth firm Hims & Hers (HIMS -0.23%) and related services. Amazon will soon provide upfront pricing for various health issues, including ED and men's hair loss – both substantial revenue drivers for Hims & Hers.
Amazon has previously tried to join the telehealth sphere, albeit with mixed results. Its latest move appears to be an attempt to reduce the prices of popular pharmaceutical drugs regularly sold through subscription services. Amazon has already been offering online doctor consultations and dispensing drugs through its Amazon Clinic website (now known as Amazon One Medical) since 2023. This latest move looks like a more direct push into subscription sales.
However, Amazon hasn't started selling popular GLP-1 compounding drugs, which have become a significant growth driver for Hims & Hers. Additionally, it hasn't introduced personalized subscriptions that have contributed to Hims & Hers' growth. Yet, any inroads into the general subscription market could serve as a valuable growth catalyst for Amazon, considering its sizable Prime customer base. With many traditional pharmacies closing, Amazon may have an opening to step into the breach.
Should Amazon Stock be Purchased?
The primary reason to consider purchasing Amazon remains its robust AI-focused division, AWS, along with its significant investment in AI. Amazon has a proven track record of major investments yielding positive returns.
These initiatives represent substantial opportunities as well. They both target high-growth sectors, and with Amazon's extensive customer base, it can swiftly enter these markets.
From an assessment of the stock's valuation, it trades at a forward price-to-earnings (P/E) ratio of less than 33, based on forecasts for 2025. This is lower than its historical P/E level.
Given its valuation and growth opportunities in AI and other sectors, the stock continues to be an enticing investment at current levels.
In light of Amazon's strategic initiatives, investors might be interested in considering investing in the company's stock. Amazon is not only capitalizing on the potential of its AI-focused division, Amazon Web Services (AWS), but also expanding into high-growth sectors such as e-commerce and telehealth. The company's entry into these markets, leveraging its substantial customer base, could yield significant returns.
Given its current valuation, operating in sectors with high growth potential, and its reputation for major investments delivering positive results, Amazon's stock offers an attractive investment opportunity. The company's forward price-to-earnings (P/E) ratio of less than 33 for 2025, being lower than its historical P/E level, further strengthens this investment case.