Amazon’s (AMZN) strategy is clear. It wants to be the preeminent retailer across channels, not just online. And it wants to vertically integrate itself in the industry by developing its own private label business. Apparel brands represent the bulk of the growth in private label launches, but the overwhelming majority of revenues still come from electronics. Recent moves in drug delivery and pharmacy could also be a huge game changer for the company.
SunTrust’s top analyst Youssef Squali estimates private label sales will generate $12 billion (4.2% of revenue) on Amazon’s online marketplace in 2019 up ~40% year-over-year. Including Whole Foods, total private label sales increases to $15.6 billion (5.6% of revenue). By 2022, the analyst expects private label sales will amount to ~$31 billion, or ~7% of overall revenue. His estimates mainly reflect increased sales projections for Echo, Fire TV, and Apparel.
Squali noted, “The rise of private labels and exclusives is one of the least understood/most under-appreciated trends within Amazon, and one which gives the company an “unfair” competitive advantage. Unfair because it’s difficult to dislodge once attained, fair because it’s earned not bestowed. This strategy should strengthen the flywheel effect of proprietary offerings/better user experience/ higher retention/spend/share gain, and should prove accretive to margins over time. Expansion into offline distribution, deepening of its cloud’s penetration and emergence as a major ad platforms keeps AMZN compelling.”
“We note the company has recently stated that private label products account for only ~1% of total sales, which we agree with IF one excludes sales from electronic brands (Echo, Fire TV/tablet, Ring etc) as well as Whole Foods. We expect growth in this segment to continue to outstrip overall ecommerce growth at Amazon for several years to come,” the analyst added.
All in all, Squali reiterates a Buy rating on Amazon shares, with a price target of $2250, which represents a potential upside of 38% from where the stock is currently trading.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Youssef Squali has a yearly average return of 18.4% and a 65.5% success rate. Squali has a 35.2% average return when recommending AMZN, and is ranked #63 out of 5129 analysts.
The retail giant’s stock has enjoyed a solid 2019 to-date with nearly 10% climb. Wall Street’s confidence speaks for itself; AMZN has received a whopping 37 ‘buy’ ratings in the last three months vs. only 2 ‘hold’ ratings. Meanwhile, the $2,139.86 price target suggests a potential upside of nearly 30% from the current share price. (See AMZN’s price targets and analyst ratings on TipRanks)