Is Wall Street losing confidence in Amazon’s retail dominance?

Wall Street continues to voice its concern on Amazon’s profit outlook in the wake of a mixed third quarter and cautious fourth-quarter profit outlook issued in October. For starters, Amazon (AMZN) is the third worst-performing member of the once ballyhooed tech group ‘FAANG’ during this past month’s rout, dropping 16%. Only Apple (-22%) and Netflix (-17%) have put up more alarming performances than Amazon during this turbulent stretch. 

Meanwhile, stock analysts have persisted in slashing their profit forecasts on Amazon. Analysts have cut their fourth-quarter earnings estimates on Amazon by 7.7% dating back to Sept. 30, according to Factset data.

Interestingly, these things have happened to Amazon as old school brick-and-mortar retailers reported strong third quarters and began the holidays on a strong note. It’s as if the market is saying Amazon’s utter retail dominance is beginning to wane.

What is going on: The main ingredient in Amazon reaching a mind-blowing $1 trillion market cap on Sept. 4 is the belief in its ongoing retail dominance. From its ever expansive selection of merchandise to an impressive 100 million-plus Prime members, Amazon has no doubt changed how goods and services are consumed in America. For the past 10 years that has largely come at the expense of brick-and-mortar retailers such as Walmart, Target, Best Buy and Macy.s 

Macy’s CEO says Black Friday is off to a strong start. Jeff Gennette sat down with Yahoo Finance’s Brian Sozzi at the iconic Herald Square location.

But there are signs that old school retailers — following years of investments to make their websites easier to shop and offer speedier shipping — are beginning to take the fight back to Amazon. Walmart, Target and Best Buy had third quarter online sales increases of 43%, 49% and 12.6%, respectively. Those are just among several standout online performances from retailers not named Amazon in the quarter.

Noteworthy is that Amazon’s online sales growth in the third quarter (11%) slowed for the fourth straight quarter, according to company filings.

At the same time, those aforementioned retailers appear to be off to a strong start online for the holidays. Macy’s chairman and CEO Jeff Gennette told Yahoo Finance it will reach $1 billion in mobile sales this year. Walmart U.S. CEO Greg Foran revealed to Yahoo Finance that online sales on Thanksgiving Day were better than expected.

More broadly, Black Friday purchases made on smartphones smashed the current record of $1.4 billion set on Cyber Monday in 2017, coming in at $2.1 billion, according to Adobe Analytics. Over one-third of online Black Friday sales were made on smartphones, compared to 29.1% on Black Friday last year.

It’s hard to believe better shopping experiences at legacy retailers didn’t help them slice into Amazon’s digital lead. At least that’s what the data suggests. 

“Even consumers who shopped online made trips to retail stores with buy online pick-up in-store (BOPIS) orders up significantly (73%) from Thursday to Friday. Retailers have done their part to build better mobile experiences for consumers and turning nearly 10% more smartphone visitors into buyers this Black Friday versus last,” said Taylor Schreiner, director of Adobe Digital Insights.

Contrarian take: Many on Wall Street remain very upbeat on Amazon. Piper Jaffray analyst Michael Olson thinks Amazon’s stock is ripe for “material appreciation” in the next 12-24 months. “Our expectations for Q4 and 2019 include margin expansion that is a result of cost containment, advertising and Amazon Web Services growth, increasing Prime subscription rates and raising other subscription revenue,” Olson wrote. He has a $2,050 price target on Amazon, implying 36% upside. 

“We believe Amazon (with best-in-class fulfillment, breadth of products, and strong mobile presence) will be a major beneficiary of holiday retail growth,” said Jefferies internet analyst Brent Thill.

The bottom line: While still a force in retail, Amazon will enter 2019 with re-energized foes that operate thousands of stores. Factor in healthy competition in the cloud from Microsoft and others and increased levels of investment needed to support its growth plans, investors are right to dial back their enthusiasm for Jeff Bezos’ creation. 

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Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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