Amazon is one of the most powerful companies in the world. With hundreds of billions of dollars in revenue, the company is still growing rapidly. Multiple times a year, the company announces its foray into a new market. The stocks of incumbent players in Amazon’s new area of focus fall sharply on the news. This pattern has repeated itself many times over the last decade or so.
When you look at the performance of the affected stocks a few years later, they all did very well. Amazon’s entry into their market had made them better and their businesses thrived.
Recently, Amazon announced that it will be entering the pharmacy business. Not surprisingly, any stock that was remotely associated with the pharmacy business such as Walgreens, CVS, McKesson, etc. fell sharply. But the biggest impact was felt by GoodRx (GDRX), a company that had IPO’d just recently. GoodRx allows people to search for prescription drug prices online and gives its users coupons to save money on their prescriptions.
If you own pharmaceutical stocks that fell on Amazon’s announcement, you can be at ease knowing that your stocks may perform just fine over time. Let’s take a look at some examples.
How Stocks Behaved After Amazon’s Encroached On Their Market
In 2012, Amazon announces the launch of Prime Video that offered free movies to its Prime members. Netflix (NFLX) shares fell sharply on the news. But NFLX was a runaway winner a few years later.
In 2015, Amazon launched “Handmade At Amazon” where artisans can sell their home-made crafts. It was supposed to be an Etsy (ETSY) killer. Etsy has thrived since Amazon’s launch.
In 2017, Amazon announces that it’s buying Whole Foods. Stocks of Walmart (WMT) and Kroger (KR) fell on the back of Amazon’s announcement. But stocks of both companies recovered and delivered excellent returns a few years later.
In 2017, Amazon announces that Amazon Music will be free for Prime members. Spotify (SPOT) shares fell on the announcement, but subsequently recovered and delivered great returns for investors.
In 2017, Amazon launched a salvo against Blue Apron (APRN) by offering its own prepared meal kits. Amazon’s marketing slogan was “We do the prep. You be the chef”. Blue Apron fell 30% on the day of Amazon’s announcement. Amazon eventually exited the business.
Remember the Fire phone. I don’t either.
When Amazon enters a new market, its success is not guaranteed. Don’t make panic moves if you own the affected stocks. If you don’t own the stocks, it may be a good opportunity to buy them cheap.
Amazon enters and exits so many businesses, it is hard to keep track of them. But one thing is clear. In most cases, the incumbents are able to hold on and do just fine. In fact, having Amazon as a competitor makes them efficient.
Don’t make any changes to your portfolio based on Amazon’s product or service launches. In fact, it may be an opportunity to add a few good companies to your portfolio. Your portfolio will thank you down the line.