Buy better: Amazon vs. Nike
Amazon (NASDAQ: AMZN) and Nike (NYSE: NKE) both benefited from changes in consumer behavior this year.
With the closure of many physical stores and the need for social distancing, more and more people have turned to online shopping, which has given the leader in e-commerce a boost. Meanwhile, as tens of millions of people switched to remote work and countless people began to devote more time to individual outdoor sports, sales of sports equipment and clothing from Nike have grown, and not less thanks to a strong digital sales channel.
The outlook for both companies looks good as people continue to socially distance themselves and shop online for fear of contracting COVID-19. However, the rollout of effective vaccines against the virus could lead to a return to more in-store shopping and new spending on entertainment and travel. So, in light of this perspective, which of these consumer discretionary business is the best buy right now?
The case of Amazon
The e-commerce giant’s revenue growth has been impressive this year – up 37% in the third quarter after increases of 40% in the second and 26% in the first.
Recent reports indicate that his strength has continued into the holiday season. According to data firm Numerator, Amazon outperformed during the Thanksgiving period to Cyber Monday this year, receiving nearly $ 1 in every $ 5 spent. Gen X and Baby Boomers in particular have favored Amazon, according to Numerator data.
This year’s Black Friday and Cyber Monday were also “the best ever for independent businesses selling on Amazon – almost all of them are small and medium-sized businesses – with global sales growing by over 60%. year on year, “the company said. noted in a press release.
While the end of the pandemic is likely to see an upturn in in-store shopping, Amazon has ways to maintain its impressive growth, and among its most powerful tools will be its Prime program. CFO Brian Olsavsky said of Prime during the third quarter earnings call: “Renewal rates are increasing and engagement is increasing. So people shop more frequently and in more categories, they use our digital advantages more. The company is also investing in top-notch content for its global Prime member base, which it sees as a good acquisition channel for new Prime members.
Another segment driving Amazon’s growth and profitability is Amazon Web Services (AWS). Segment revenue grew 29% year-over-year in Q3, and Amazon sees strength continuing as more businesses turn to AWS to help lower costs . CFO Brian Olsavsky commented on the third quarter earnings call: “We have seen many companies extend their contracts with us. The multi-year order book has increased considerably. So that’s a good thing from a customer connectivity point of view.
Sports equipment and gear giant Nike has also benefited from the adoption of sportswear and sports equipment, stimulated both by their transition to teleworker status and by a greater interest in fitness and well-being. However, Nike’s business has been negatively impacted by store closures and disruptions to sporting events.
In Nike’s fiscal first quarter, which ended August 31, revenue declined 1%, following a 36% drop in revenue in the fourth quarter and a 5% increase in the third quarter. The company highlighted the closings of owned and partner stores for the sharp drop in sales during its fiscal fourth quarter, which covered the months of March, April and May: 90% of Nike-owned stores were closed for about eight weeks during this quarter.
The sporting goods company is currently benefiting from the reopening of stores, the strength of its digital channel and new product launches. Nike continues to add new styles to its popular Air Force 1, Air Jordan 1 and Air Max shoe brands. During its first fiscal quarter, the company also launched its first maternity line and a new yoga collection. It also launched a sustainable footwear platform called Space Hippie, which is appealing to younger Gen Z consumers.
When COVID-19 is brought under control, people will no doubt return to live sports and group athletics. In-store purchases should also be stimulated. All of these factors should help Nike’s business.
While Amazon and Nike are experiencing headwinds and appear to be well positioned for the long term, Amazon is overtaking Nike in terms of growth. While Nike’s business is expected to be significantly boosted when pre-pandemic normalcy returns, Amazon’s impressive customer loyalty is expected to drive continued growth regardless of the prevailing conditions. Despite recent positive developments on the vaccine front, Amazon still appears to be the less risky choice as its business has not only been resilient, but also experienced greater growth during the pandemic. It’s still too early to predict when conditions will return to pre-pandemic normal, which means I’ll be placing my bet on Amazon.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.