E-commerce behemoth Amazon, Inc. (NASDAQ:AMZN) has unveiled a groundbreaking venture, cementing a collaboration with Hyundai Motor Group foray into car sales. Delving deeper, let’s unpack the impact this holds for Amazon and the automotive retail sector.
Amazon’s Revolutionary Car Retail and Digital Venture with Hyundai
Amazon’s revelation at the Los Angeles Auto Show signifies a forthcoming era where Hyundai cars will be available for online purchase on the company’s platform from 2024. The process involves customers leveraging Amazon’s conventional online experience to select and procure a vehicle, which can then be retrieved from a local dealership or delivered.
In an emphasized press release, Amazon highlighted that Hyundai “will be the first brand available for customers to purchase.” Furthermore, the deal encompasses Amazon becoming Hyundai’s digital transformation partner, involving the utilization of the AWS cloud and the launch of an in-car version of Alexa in 2025.
Enabling customers to peruse Amazon for vehicles in their vicinity based on diverse preferences, including model, color, and features. Hyundai’s Alexa integration enables users to “play music, podcasts, or audiobooks, set reminders, update to-do lists, and check calendars.”
For Amazon, this marks yet another colossal corporation transitioning its business operations to the cloud, while for Hyundai, it presents an opportunity to harness the company’s expansive sales reach, likely prompting other automakers to endeavor to keep pace.
Hyundai Motor Company’s CEO, Jaehoon Chang, articulated, “Partnering with one of the world’s most customer-centric organizations unlocks incredible opportunities as we continue to expand our portfolio… grow our sales network.”
Impact on the Auto Retail Sector
The inception of Amazon’s foray into car sales has had immediate ramifications, reminiscent of its prior market disruptions such as the acquisition of Whole Foods in 2017, sparking an initial ripple effect.
Car retailers CarMax (KMX) and Carvana (CVNA) witnessed a slump of almost 6% in their shares on Friday, before experiencing a recovery. Analysts at Bank of America noted that the industry may reap benefits from Amazon’s arrival.
“The scope of the partnership is broader than just selling vehicles through Amazon. It is also important to recognize that auto sales represent the largest retail segment in the U.S. and globally. Amazon’s computing capabilities may enable Hyundai to deploy a wide range of data analytics and generative AI tools to optimize manufacturing and supply chain management, along with the retail process and lifetime consumer relationship,” affirms the analysts.
Despite the current buy rating on some auto retailers, BofA’s John Murphy elaborated, “Current franchise laws ensure that dealers must be the intermediary in auto transactions and most warranty repairs.” The analysts added that Amazon could contribute to enhancing a well-run dealership group.
Amazon’s Multi-faceted Expansion in Cloud and Commerce
This partnership fortifies Amazon’s AWS cloud dominance and introduces the potential for an additional lucrative revenue stream. Although analysts may downplay the present effects on the auto retail industry, it could create an opening for Amazon to establish its own vehicle outlets, or encroach upon pricing as the process evolves to be more retail-focused. Embracing an online trend could potentially replicate what Amazon did to bookstores and other brick-and-mortar stores across various product categories.
Despite being seen as a company expected to mature and slow down, Amazon consistently delivers robust performances in gross profit per quarter, marked by single or double-digit gains outside of the cyclical post-holiday slump. The company also continues to record year-over-year revenue advancements.
Moreover, Amazon has achieved a significant milestone this year, generating a staggering $21.4 billion in trailing twelve-month free cash flow.
As the shares set their sights on all-time highs, approximately 25% higher, investors are advised to monitor Amazon’s AWS cloud strength, while recognizing that deals akin to the one inked with Hyundai indicate that major corporations are embracing digital business models and entrusting entities like Amazon with their data. Notably, recent AWS agreements have been struck with BMW, Occidental, and PwC in the previous quarter.
Amidst its recent earnings report, Amazon showcased a robust performance, with Net Sales escalating by 13% to $143.1 billion in the third quarter, compared to $127.1 billion in the same period the previous year. The North American and European segments witnessed double-digit growth, and the AWS segment’s sales surged by 12% year-over-year to $23.1 billion.
Furthermore, the company continues to make headway in enhancing its delivery speeds. CEO Andy Jassy stated, “The benefits of moving from a single national fulfilment network in the U.S. to eight distinct regions are exceeding our optimistic expectations, and perhaps most importantly, putting us on pace to deliver the fastest delivery speeds for Prime customers in our 29-year history.”
In tandem, Amazon is progressing in developing custom artificial intelligence chips and a coding assistant. Notably, the earnings statement outlined that customers such as Adidas, Booking.com, GoDaddy, Merck, and United Airlines are commencing running generative AI workloads on AWS.
Another significant announcement pertains to Prime members gaining access to U.S. healthcare provider One Medical’s offerings for a fee. While the company’s placement in the healthcare sector is still evolving, it underscores Amazon’s endeavor to leverage its growing Prime customer base.
Potential headwinds to the share price could emanate from a deteriorating macroeconomic environment and foreign currency effects. However, any slowdown in advertising could conceivably be mitigated by companies embracing AI tools in AWS. With potential efficiencies in the offing, such spending is likely to take precedence over hefty ad expenditure in the forthcoming years.
Underpinning its appeal, Amazon’s valuations in other metrics, like a price/sales ratio that currently stands -21.64% lower than the 5-year average, and a price-to-book ratio that is presently -43% compared to the same period, confirm its attractiveness at this juncture and particularly on any correction.
