Wall Street's gotten obsessed with how Amazon could upend everything (AMZN)

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In the past week, there has been a flurry of analysis from Wall Street on how Amazon could affect various industries, including banking, healthcare, logistics, and online travel.
All the analyses are at least partly based on Amazon's flywheel model built on offering "Earth's biggest selection," using scale to lower the cost of goods and delivery, and providing a great customer experience.
Through this lens, it appears there are few businesses Amazon couldn't upend.

It seems Wall Street has a new obsession: What's Amazon going to Amazon next?

In the past week, there has been a flurry of analysis from Wall Street on how Amazon could affect various industries, including banking, healthcare, logistics, and online travel.

Banking

Amazon is reportedly in talks with several large US banks to launch a "checking-account-like product," and it's hiring for its global Consumer Payments team to expand its payment products internationally.

That has some on Wall Street fearing the effect Amazon could have on consumer banking.

The Bain & Co. partners Gerard du Toit and Aaron Cheris said in a post:

"We could imagine Amazon's banking services growing to more than 70 million US consumer relationships over the next five years or so — the same as Wells Fargo, the third-largest bank in the US.

"The estimate assumes that slightly more than half of Amazon's estimated US customer base chooses a financial relationship with the firm — the same share of people who said in our new global survey that they expect to buy a financial product from a major technology firm over the next five years."

Investing

Amazon's potential in checking accounts — as well as the threat of platform companies to big finance more generally — has some wondering whether the tech giant could go head-to-head with Wall Street in investments.

For example, what would happen if Amazon decided to launch a roboadviser, a blanket term used to describe automated financial advisers, in a red-hot market?

It's a question Cynthia Loh — a vice president at Charles Schwab, which manages more than $20 billion in assets through its roboadviser Schwab Intelligent Advisory — has on her mind.

She told Business Insider she saw Amazon as a bigger threat to existing roboadvisers than to the big banks.

"A Google or Amazon robo would keep me up at night more than Morgan Stanley's new robo," Loh said.

Logistics

UBS analysts led by Thomas Wadewitz and Eric Sheridan said in a note to investors on Friday that Amazon would continue to put pressure on the likes of UPS and FedEx.

First, by investing in its own logistics networks, Amazon saves about $1 billion a year, the analysts said — money that could have gone to rival logistics providers.

And the rollout of Shipping with Amazon in Los Angeles hints at longer-term competition with these providers.

"With their 'Shipping with Amazon' offering for 3P sellers, the company appears to be planting the seed for offering logistics capabilities to unrelated third parties (experts believed ~8-10 years out before scaled)," the analysts said.

In a separate note, Morgan Stanley analysts led by Adam Jonas described the effect Amazon could have on Tesla's aspirations in trucking:

"AMZN has a vested interest in taking the marginal cost of transportation to its lowest possible level. Look no further than AMZN's 'fulfillment' and 'shipping' expense line items in its income statement.

"In aggregate, fulfillment and shipping was $46bn in 2017, and Morgan Stanley Internet Analyst Brian Nowak expects it to reach $64bn in 2018 and $291bn by 2027.

"We're in no position to say whether AMZN would be a partner or a potential competitor to Tesla in the area of transport, trucking, and logistics, but we point out the scale that large e-commerce players can bring, which could lead to surprisingly deflationary long-termtrends in some of Tesla's core initiatives."

Online travel

Amazon has tried to enter the online travel market a couple of times without success. And according to Morgan Stanley analysts led by Nowak, while there's no obvious sign that it will try again, the size of the opportunity is significant.

Nowak said:

"The online travel industry is built on ad spend efficiency and conversion ... and AMZN's platform of 300mn+ estimated buyers and its entrenched position in consumers' lives lay a foundation to compete in online travel.

"Further, AMZN's focus on selection/service, pricing, and frictionless payment that drive conversion and stronger user economics also translate directly to travel. Our rough ad efficiency analysis (ad spend/transaction) speaks to AMZN's ability to drive repeat/direct traffic ... as its estimated $0.75 ad spend/transaction is a fraction of what BKNG/EXPE spend."

Nowak and team think an Amazon entry into online travel booking could generate $600 million in annual operating profit in a conservative scenario and $1.5 billion in a more bullish scenario.

"We argue that a robust hotel selection combined with AMZN's ability to use data/machine learning/personalization would change travel consumer behavior and drive adoption," the note said. "The integration of the Amazon Prime Rewards credit card and 5% cash back would likely accelerate it."

Healthcare

Amazon's ambitions in healthcare have become more apparent over the past year, leading to speculation about what the company might do if it got into the prescription-drug business.

One potential victim of such a move, according to the Bernstein analyst Lance Wilkes, is Express Scripts, set to be acquired by Cigna in a $67 billion deal.

And now there's a chance Amazon could partner with UnitedHealth Group, Wilkes said.

Of the Cigna-Express Scripts deal, he said:

"We would view this as increasing the likelihood of UNH and Amazon partnering with Amazon entering retail pharmacy. We had been increasingly focused on Amazon forcing its way in network, potentially aided by the coalition with JPM and Berkshire. While we continue to see that as a focus, consolidation activity may make UNH a more willing partner as they seek to differentiate themselves."

The home

Amazon is acquiring Ring, a startup that specializes in smart doorbells with video cameras.

That could help give Amazon another connection to consumers' homes, with Ring meeting arrivals at the door, Prime beaming movies and shows to the TV in the living room, an Echo speaker playing music in the kitchen, and Alexa acting as an audio assistant.

It could also be part of a high-tech pipeline to deliver retail goods and groceries straight to consumers.

"The trifecta of Alexa, Echo, and Prime should enable Amazon to further penetrate the consumer, expand Prime membership and retail spending patterns, while widening the company's consumer competitive moat with the Ring acquisition putting further fuel in this smart home engine for Amazon," Daniel Ives, an analyst at GBH Insights, wrote in a note to investors.

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