Amazon.com, Inc.’s (AMZN) Sustainable Competitive Advantage with 100% Incremental e-Commerce Sales

March 10, 2014

Gavin Baker, Portfolio Manager at Fidelity Management & Research Company, is forecasting that e-commerce is likely to triple or even quadruple over the next 50 years, and Amazon.com, Inc. (AMZN) is set to benefit.

“Looking at e-commerce, each year e-commerce comprises 10% of total retail sales, but 40% of incremental sales,” Baker said. “This is likely to be very positive for e-commerce companies with sustainable competitive advantages.”

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Amazon.com is one of these companies that has a competitive advantage, Baker says, due to the company’s immense incremental sales and scale advantage.

“They have less than 10% of total e-commerce sales, but they have more than 100% of incremental e-commerce sales, so they are taking share within e-commerce and from their direct e-commerce competitors in the United States. They are 20 times larger than the number-two player,” Baker said.

Baker also points to other statistical tailwinds he sees behind his fundamental analysis on Amazon.com.

Amazon┬áis optically expensive. They have total control over their margins. Jeff Bezos runs it with a very long-time horizon. So investors should look at the valuation through a normalized margin basis…I think it’s very clear that on that math that it’s not expensive, but it does have very good price momentum,” Baker said.