Amazon Stock Analysis: One Step Closer to Retail Domination

This article was written by Jason Schwartz, a Financial Analyst at I Know First

Amazon Stock Analysis 

“Your margin is my opportunity” Jeff Bezos


  • Amazon acquires Whole Foods for $13.4 billion all-cash
  • The beginning of an advantageous relationship for Amazon and Whole Foods.
  • Amazon Prime Wardrobe will let Prime customers to try on clothing at home before they pay for it
  • Nike will start selling directly on Amazon
  • Bullish I Know First Forecast for AMZN


Many analysts were taken by surprise when Amazon announced that it would acquire Whole Foods, the largest natural-foods supermarket chain in the United States. However, those acquainted with Amazon were not as surprised by the $13.4 billion all-cash transaction. These analysts have learned that Jeff Bezos’ ambition knows no bounds. They recognize that Bezos wants for Amazon to revolutionize commerce and transform the feeling of everyday life.

Explaining Amazon’s Success  

By anticipating the future needs of customers, Bezos has both built an empire and established a personal fortune. Many have already began to speculate that Amazon will be the first company ever to be valued at $1 trillion and Bezos will become the world’s first trillionaire. This has all been made possible by Bezos’ blatant disregard for the traditional rules of business. Bezos is more interested in long-term growth and a superior customer experience than he is quarterly profits. So much so that Amazon is willing to lose money year after year in order to increase the customer base and better the customer experience. This is done largely by outspending competitors on research and development as well as mergers and acquisitions.  

Just as importantly, Amazon has incorporated risk as a part of its strategy for sustainable growth. Amazon is no stranger to failure. Over the past two decades, dozens of projects including Amazon Destinations, Amazon Auctions, and Fire Phone have all failed. The company is fully aware that failed experiments are a necessary evil to creating successful inventions. In fact, some of Amazon’s most successful ventures, including Amazon Web Services, Prime, and Marketplace, have been made possible by bold risk taking.

Amazon Stock Analysis 

Concerns Surround the Deal

The market has responded in favor of Amazon’s acquisition of Whole Foods. Following the announcement, AMZN has increased by over $16 per share while WFM has increased by nearly $10 per share. While traditional supermarket chains such as Kroger, Target, and Costco saw their stock decrease drastically. Nevertheless, legitimate concerns surround the deal. One concern being that Amazon may have overpaid. Amazon paid over $13 billion for Whole Foods despite the fact that grocery chain has posted seven consecutive quarters of declining sales and only has 431 locations. Another concern being that Amazon is becoming too big. Amazon has even been accused of violating antitrust laws.

Bezos is committed to proving the naysayers wrong. In 2013, Bezos bought the Washington Post for $250 million, even though the paper was facing years of decline. Since then, Bezos has changed the outlook for the legacy media company. He has reinvented the paper as a media and technology company. Bezos expects to have similar success with Whole Foods. Additionally, Bezos does not concern himself with accusations that Amazon is on the verge of becoming a monopoly or even bad for society. By expanding choice, making shopping far more convenient, and delivering superior product value, Amazon has done a lot of good for society.

Amazon’s goal is a takeover of retail itself, both physical and digital. This acquisition is one step closer to achieving that ambitious goal and will certainly have far-reaching implications.

Amazon Stock Analysis

The Start of an Advantageous Relationship

The Whole Foods deal is more than ten times bigger than any acquisition Amazon has made so far. The precise impact of the deal is hard to gauge, the possibilities are endless. The fact that the combined companies only account for just 1.4% of America’s grocery market is frankly irrelevant. When Bezos purchased The Washington Post in 2013, he did so without doing any sort of due diligence. This clearly was not the case. This is the beginning of an advantageous relationship for Amazon and Whole Foods. According to a report by JPMorgan, Whole Foods currently experiences approximately 8 million weekly customer visits, and has 30 million customers. The investment bank believes that there is likely significant overlap with Amazon’s projected 60 million domestic households.

Despite having had no problem decimating retail shopping, the company has struggled to make inroads in the food industry. Although a growing share of office supplies and clothes are bought online, e-commerce only accounted for just 2% of American spending on food and drinks. Unsurprisingly, Amazon plans on changing that. Over ten years ago, Amazon introduced AmazonFresh, a grocery-delivery service. Yet the service is only in 20-odd cities. In 2014, Amazon introduced Prime Now, a two-hour delivery service. But Prime Now is only in 31 cities. The problem: many consumers simply prefer to buy food in person. Buying food is instinctively different than buying a battery or book. Amazon has tried to utilize machine learning to solve some of the problems that have arisen. For example, using machine learning to distinguish the difference between a ripe tomato and a moldy one. Evidently, Amazon has struggled to do so.

Currently, Amazon only has a handful of storefronts. By acquiring Whole Foods, Amazon will gain more than 400 brick-and-mortar locations. It is plausible that Amazon will use these storefronts as mini-warehouses that can support such services such as AmazonFresh and Prime Now. In addition, Amazon has learned that facilities for distributing fresh food are far more complicated than ordinary warehouses. Amazon will acquire over 1 million square feet of warehouse space for distribution from Whole Foods. The combination of new storefronts and warehouse space should benefit both AmazonFresh and Prime Now.

Amazon Stock Analysis

Amazon vs. Walmart 

By acquiring Whole Foods, Amazon hopes to better compete with Wal-Mart, the retail giant. Wal-Mart was able to gain a competitive advantage by knowing more about which products were selling in which locations than any other retailer. This allowed Wal-Mart to make better decisions about what to stock. Meaning that the retailer could make higher profits on lower prices than the competition. So Wal-Mart knows what its stores sold, not what individual customers bought. On the other hand, Amazon has a profound understanding of consumer behavior. Amazon knows exactly what each and every customer buys and looks at. Amazon was one of the first companies to discover the power of early artificial intelligence (AI). By using AI, Amazon is able to recommend products based on your shopping habits. For example, Amazon is currently utilizing AI to learn about the people who live near each bookstore and to decide what books to carry. Amazon’s use of artificial intelligence will be beneficial to both Amazon and Whole Foods. Amazon will learn more about customers who seek natural and organic food. While artificial intelligence will be used to make Whole Foods more desirable to people who live near the grocer. In summary, Amazon knows more about people than Wal-Mart, which will undoubtedly enable Amazon to compete directly with Wal-Mart.

Amazon has numerous advantages for Wal-Mart. One being that Wal-Mart operates almost 5,000 brick-and-mortar storefronts in addition to employing 2 million people across the world. While Amazon on the other hand has 100-plus roboticized fulfillment centers and only 341,000 employees. The logistical advantage that Amazon has over its competitors will enable the company to lower prices while increasing margins. Additionally, Amazon delivery appeals to people in cities while Wal-Mart is more geared to a suburban and rural areas, which have been hurting in many parts of the country. Still, none of the preceding compares to Amazon’s advantage in artificial intelligence.

In addition to the use of artificial intelligence, augmented reality could have a transformative impact on traditional retail. For example, imagine walking down a grocery aisle and seeing only food that are gluten-free or kosher. This could become a reality now that low-cost augmented glasses are becoming more widespread. Vegetarian options could be highlighted in your vision while other packaging would fade into the background. If Amazon is successful in helping Whole Foods incorporate artificial intelligence, machine learning, and augmented reality, it will revolutionize the entire industry.

Amazon Stock Analysis

Better Access to Shelf Space

Bezos has been deliberately vague regarding the acquisition. But it is reasonable to think that Amazon is not primarily going after the stores themselves, but rather the products on the shelves for two reasons. One being that grocery stores are a notoriously low-profit-margin business, even when taking into account that Whole Foods has relatively high margins for a grocery store. The second being that location is of the utmost importance in the grocery business and Whole Foods only has 431 storefronts. Instead, Whole Foods is going after the higher-profit-margin consumer packaged-goods companies such as Procter & Gamble and Colgate-Palmolive. The company has already gained significant market share in diapers and batteries, with its AmazonBasics brand. It is quite plausible that Amazon will extend the AmazonBasics brand to other categories, and that Whole Foods will start to carry the brand.  In food, Whole Foods has already created the organic “365” private-label brand. Another vehicle for Amazon to compete against high-margin major brands. Increasingly, customers are looking for fresher foods and more organic and natural offerings. Amazon hopes that “365” will take away shelf space from big brands like Kellogg’s and Kraft Heinz.

Amazon Stock Analysis

Launch of Amazon Prime Wardrobe

Four days after announcing that it would be acquiring Whole Foods, the company announced the launch of Amazon Prime Wardrobe. The service will let Prime customers to try on clothing at home before they pay for it. Prime customers will be able to try on up to 15 items of clothing at home. For any items they do not want, customers can schedule a free pick-up. If a Prime customer decides to keep three or four items from the box, they will receive 10% discount. Or if they keep five or more products, they will receive a 20% discount. The service will feature Calvin Klein, Levi’s, Adidas and Lacoste amongst other brands. The service is currently being tested in the United States. Amazon Prime Wardrobe has the potential to revolutionize the way we shop for clothing.  

Amazon Stock Analysis

Amazon Partners with Nike

Not only has Amazon acquired Whole Foods and launched Amazon Prime Wardrobe, it was recently announced that Nike will start selling directly on Amazon. As of now, Nike products are only sold by third party sellers through the Amazon Marketplace. Also, Nike sells its products on, an Amazon subsidiary. Unsurprisingly, sales through third party sellers increases the risk of counterfeit products. The partnerships will ensure that Amazon customers will have access to genuine Nike products. Male millennials named Amazon as their favorite retailer in all segments except shoes and athletic according to a recent Goldman Survey. In shoes and athletic, Nike was the leader. Evidently, Amazon and Nike are forming an advantageous partnership.

Department stores such as Macy’s, Sears, and JCPenney have already struggled to adapt to increasing competition from e-commerce and declining mall traffic. Amazon believes that it is now one step closer to replacing department stores. This year, Amazon is expected to surpass Macy’s to become the biggest seller of apparel in the United States.

Amazon Stock Analysis


With Amazon’s multi-billion dollar acquisition of Whole Foods, the conglomerate will gain over 400 brick-and-mortar storefronts, 1 million square feet of warehouse space, and the organic “365” private-label brand. Amazon will provide Whole Foods with technological advances in artificial intelligence and augmented reality as well as logistical know-how. While Whole Foods provides Amazon with a boon to both AmazonFresh and Prime Now. In addition, the launch of Amazon Wardrobe and partnership with Nike will certainly help Amazon become the biggest seller of apparel in the US. Jeff Bezos’ ultimate goal is for Amazon to sell consumers practically everything they ever want to buy, in both a convenient and affordable manner. It is certainly an ambitious goal, however, I believe that Bezos’ strategic vision for Amazon combined with his business acumen and the company’s resources could potentially make it a reality.

I Know First Algorithm Bullish Forecast For AMZN

Amazon Stock Analysis

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm, allowing the user to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above in order to fill confident about/trust the signal.

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