3 COMPETING Stocks to Watch on Amazon’s Prime Day

Get set for the biggest sale of the year. Just weeks before Halloween, Amazon Prime Day is coming on October 13-14. Amazon.com, Inc. (AMZN) debuted Prime Day five years ago. It usually takes place in July which is a slow season for shopping. But Amazon delayed the event, this July, as the world was fighting the COVID-19 pandemic, and Amazon was focused on delivering staples and household items to customers.

What is the big deal with Amazon Prime Day?

Amazon doesn’t release Prime Day sales figures. But eMarketer noted that AMZN’s Prime Day revenue surged 71% year-over-year to $7.16 billion in 2019, surpassing its combined sales of Black Friday and Cyber Monday. eMarketer expects this year’s Prime Day revenue to surge 43% year-over-year to $9.9 billion.

This year, Prime Day will be different from the last four years. The pandemic has increased online shopping. AMZN timed its big sale for July to benefit from the summer and back-to-school-season. But this July, consumers spent their summers in homes and attended schools online. 

Amazon is the main beneficiary of Prime Day. But it has been experiencing see strong competition from retailers like Walmart Inc (WMT) and Target Corporation (TGT). They are also hosting big sales.

Amazon.com, Inc. (AMZN)

AMZN will gain from Prime Day on three fronts. Firstly, AMZN earns revenue from subscriptions. Many customers will be lured by the heavy discounts and sign up for monthly or annual prime membership or start a one-month free trial.

Second, AMZN offers great deals on in-house products like Echo, Fire TV Cube, and home security products. In last year’s Prime Day, Echo Dot and Fire TV Stick were among the top-selling items. A similar trend could appear this year as these products support the stay-at-home culture.

Third, AMZN earns a commission on the transaction volume. Prime Day attracts large traffic. Last year, it earned 10% of its third-quarter revenue from the two-day sale. This year will be bigger.

The second half is seasonally strong for the e-commerce giant. But this time, the pandemic drove sales for the first and second quarters up 26% and 40% year-over-year, respectively. AMZN significantly increased fulfillment and delivery capacity in the United States and Canada to meet the surge in demand. This capacity could help it process more orders in the Prime Day sale. The Street estimates its third and fourth-quarter sales to surge 32% and 27%, respectively.

At $3,287 stock price (5 times its sales per share), AMZN is an expensive stock. Despite its high valuation, the stock surged 3% on Friday. It could rise further when the sale goes live. AMZN stock is rated “Buy” in our POWR Ratings system. It also has an “A” for Trade Grade and a “B” for Buy & Hold Grade, Peer Grade, and Industry Rank. In the 57-stock Internet industry, it is ranked #9.

Walmart Inc (WMT)

To compete with the world’s biggest e-commerce giant, the world’s biggest retailer WMT launched its Big Save Event three days ahead of Amazon Prime Day on October 11th, and it will run through October 15th. WMT will offer some of the best deals on TVs, games, and smart home devices. For instance, WMT will offer Google (GOOG) Nest Hub for $89.98 against its regular price of $149 and Samsung Chromebook 4 Intel Celeron N4000 11.6-Inch Laptop for $199.99 against its regular price of $229.99.

AMZN dominates the US e-commerce market with a 38% share, but WMT has managed to get the second position with a 5.8% share. WMT is trying to spice up things in the online space. In a consumer survey, WMT found that this year consumers plan to make their holiday season purchases in early November. Hence it is bringing early promotions and more online deals and will remain closed on Thanksgiving Day.

WMT has a higher exposure towards groceries, which impacts its margins and limits its sales growth to single-digit. In the first half, the pandemic drove grocery sales to new highs as people were panic buying. Its revenue surged 8.6% and 5.65% year-over-year in the first two quarters. The street estimates its third and fourth-quarter sales to surge by 3.1% and 2.6%, respectively. The stock surged 1% on Friday ahead of the Big Save Event and could rally further this week till the sale lasts.

Relative to AMZN, WMT is trading at a cheaper valuation of 0.75 times its sales per share. Hence, WMT is rated a “Strong Buy” in our POWR Ratings system. It holds “A” in Trade Grade, Buy & Hold Grade, and Peer Grade and “B” in Industry Rank. It is also the #5 ranked stock in the 18-stock Grocery/Big Box Retailers industry.

Target Corporation (TGT)

The retail war just went online. Not just WMT, but even TGT has entered the Big Sale battle. TGT is launching its Deal Days 2020 a day before Amazon Prime Day on October 13th, and it will run through October 14th. Target Deal Days are popular among gamers as it offers some of the best deals. TGT stock surged 1.14% on Friday, and it might continue to surge throughout this week.

The pandemic encouraged Target to offer in-store pickup and curbside pickup on the same day the order was placed online, thereby shortening the time between buying and receiving the order. In the second quarter, it saw a 700% surge in curbside pickup service and over 60% surge in the in-store pickup. The increase in order fulfillment drove its first two quarter’s sales up 11% and 25% year-over-year.

These pickup services would drive TGT’s Deal Days sales as well. Consumers can pick up their holiday gifts on their way to buying milk without getting into a queue and avoiding crowding at stores. The street expects its sales to surge by 10.8% and 7% in the third and fourth quarters, respectively.

TGT falls between AMZN and WMT in terms of growth and stock valuation. TGT stock is valued at 0.98 times its sales per share. The stock should continue to surge this week and the entire fourth quarter as Black Friday sales come in November. TGT is rated a “Strong Buy” in the POWR Ratings. It also has an “A” in Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. In the 18-stock Grocery/Big Box Retailers industry, it is ranked #2.

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AMZN shares rose $12.06 (+0.35%) in after-hours trading Monday. Year-to-date, AMZN has gained 86.32%, versus a 11.07% rise in the benchmark S&P 500 index during the same period.

Puja is a seasoned writer working with financial publishing companies like Motley Fool Canada and Market Realist. With over 13 years of experience in the field of fundamental research, she brings a blend of comprehensive, well-researched insights into her articles.

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