Amazon’s (AMZN) success during the global pandemic has already been well documented. The e-commerce giant has fulfilled consumers’ shopping needs with its ability to provide almost everything in its customary efficient fashion. Accordingly, while some other mega caps have struggled, its share price has soared, and notched an all-time high last week.
In addition to its status as the online retail giant, Amazon has cemented its place as a leading player in cloud services and advertising. But there is another segment that Amazon has been fostering, that while not necessarily under the radar, has received less attention.
Merrill Lynch’s Justin Post argues Amazon’s logistics infrastructure “could be 4th leg of the ‘services’ stool.”
“In addition to core 1P retail, Amazon now offers 3P retail, advertising and cloud services. We think leveraging fulfillment assets to offer B2C delivery services to 3P sellers not using FBA (and eventually to non-Amazon sellers) is an important potential opportunity,” Post noted.
Over the last 6 years, Amazon has laid out $39 billion in retail capex ($60 billion including capital leases), on increasing its fulfillment infrastructure & delivery capabilities. Taking a further step back, in 2009 Amazon had just 16 Fulfillment Centers in the US. It boasts 1,137 logistics facilities today, and plans on adding a further 192 in 2020 and 2021.
The investment has made it the 4th largest delivery company in the US.
Post estimates Amazon currently delivers 2.3 billion of its yearly 4.5 billion packages to US customers through its own logistics network. By 2025, Post expects the figure to rise to between 7.5 billion to 9.7 billion. By then, the analyst estimates the potential market value of Amazon’s delivery services will amount to between $75 billion to $171 billion in the US alone. Post values the global market to reach between $100bn to $230bn.
“Retail, cloud & advertising are still top reasons to own AMZN, but we see expanding delivery capabilities as a strategic asset for the retail business and a material opportunity to rollout another high-margin service leveraging existing capacity,” Post concluded.
Accordingly, the 5-star analyst reiterated a Buy rating on Amazon shares along with a $2,480 price target, which implies a modest upside of 5%. (To watch Post’s track record, click here)
All in all, with the exception of 1 lone Hold rating, all other 42 analysts tracked over the last 3 months rate Amazon a Buy. (See Amazon stock analysis on TipRanks)
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