Source: PaxForex Premium Analytics Portal, Fundamental Insight
Amazon has evolved from a modest online bookstore into a dominant player in various industries, potentially eyeing another $100 billion opportunity.
Currently, Amazon's primary e-commerce business generates over $300 billion in annual net sales. Its cloud computing division, Amazon Web Services (AWS), achieved a run rate exceeding $100 billion in the first quarter. The company's advertising sector already brings in $50 billion and continues to grow rapidly. Amazon Prime, which offers expedited shipping and streaming services, along with other subscription services, contributes more than $40 billion to the company’s revenue.
Given this backdrop, any new venture Amazon considers must be substantial, with the potential to reach $100 billion. The company might already have the necessary assets to launch such an endeavor.
In late 2019, Amazon began aggressively expanding its fulfillment network, nearly doubling its warehouses, fulfillment centers, sorting centers, delivery stations, and transportation hubs over the following two years.
In 2022 and 2023, Amazon slowed this expansion to concentrate on developing AWS data centers. Over the last year, the focus has shifted to maximizing efficiency within its expanded network. This has involved reorganizing from a centralized national system to a regionally structured one, reducing costs and enhancing delivery speeds for customers.
With its extensive network and regional organization, Amazon is well-positioned to offer logistics and shipping services for non-Amazon packages. While it has previously experimented in this market, recent efforts have been more targeted and substantial.
In April 2022, Amazon introduced "Buy with Prime," enabling merchants to offer Amazon Prime shipping benefits for purchases made on their own websites. Initially, this feature was exclusive to merchants who sold on Amazon and utilized its Fulfillment by Amazon (FBA) service. However, it has since been extended to third-party sellers through Amazon’s new logistics service, Supply Chain by Amazon.
Supply Chain by Amazon allows merchants to delegate their supply chain management to Amazon. This service handles shipments directly from factories and suppliers, stores them in Amazon’s warehouses, and then strategically forwards inventory to fulfillment centers. This ensures optimized stock levels for rapid delivery and reduced costs. Essentially, it mirrors the process Amazon uses for its own products.
Truist analyst Youssef Squali predicts that Amazon’s shipping and distribution sector could evolve into a $100 billion revenue stream. During Amazon's first-quarter earnings call in April, CEO Andy Jassy mentioned that this segment is already a substantial business and still in its early stages.
Significantly, Jassy views this venture as not particularly capital-intensive, leveraging the existing capacity and infrastructure. Amazon plans to incrementally increase capacity to accommodate third-party supply chain customers without substantial additional investment.
While Amazon's logistics business won't achieve $100 billion overnight, the potential for growth is substantial. The company already ships more packages than UPS or FedEx, with the capability for further expansion. Despite not expanding at the rapid pace seen in 2020 and 2021, Amazon continues to enhance its logistics network.
UPS and FedEx each generate around $90 billion annually, with market caps of approximately $115 billion and $61 billion, respectively. Amazon's logistics division could be even more valuable, given the shared capital expenses with its e-commerce operations. This synergy is noteworthy for a company already valued at around $2 trillion, as significant growth is needed to impact its stock price.
Currently, Amazon’s stock appears attractive, with an enterprise-value-to-sales ratio of about 3 and a price-to-free-cash-flow ratio of 42.5. These figures are near the historical median and lower end of its valuation range, respectively.
If Amazon’s logistics business gains traction, it could serve as a significant catalyst for driving the stock price higher.
As long as the price is above 180.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 181.88
- Take Profit 1: 190.00
- Take Profit 2: 195.00
Alternative scenario:
If the level of 180.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 180.00
- Take Profit 1: 175.00
- Take Profit 2: 170.00
