Amazon.com Inc.’s next big thing could lurk in the expensive supply chain equipment that helped transform its e-commerce business into a massive behemoth.
The Seattle-based company’s expansion into so-called logistics services — transportation and distribution — could ultimately bring in more than $100 billion in revenue, Truist Securities analyst Youssef Squali said.
“By transforming its logistics network into a service for merchants outside of Amazon, we believe the company is transforming a major cost center into a profit center,” said Squally, a long-time Amazon bull who has since issued a buy rating on the stock. . coverage began in 2017, he wrote in a research note Wednesday.
Amazon shares are up 58% this year as it shifts to cost-cutting increase profit, after Covid-19 lockdowns spurred a spending spree on warehouses and others to keep up with soaring orders. The extra sales will help boost Amazon’s revenue growth, which fell to 9% last year, its slowest growth ever. That number is expected to grow 11% to $570 billion by 2023, according to an average analyst forecast compiled by Bloomberg.
Amazon Supply Chain is its latest move to become a leading logistics company, overseeing the flow of products around the world from factories to customers’ doorsteps. The company aims to replace the various operations that handle tasks such as shipping, customs, ground transportation and inventory storage with a seamless service.
Analysts see the strategy as echoing the company’s success in the cloud, when it built Amazon Web Services to serve its own needs before opening the platform to third-party merchants.
Thomas Martin, senior portfolio manager at Globalt Investments, said in an interview that “Amazon has two main pillars: AWS and retail,” and there has been talk that they have another pillar. “We have every reason to believe Amazon will pursue this goal and that they will ultimately be successful.”
Amazon’s valuation has declined since last year, but at 34 times projected profits for the next 12 months, it remains one of the most expensive among the largest technology and Internet companies.
That’s little deterrent for Wall Street, where all but two of the 63 analysts tracked by Bloomberg have buy ratings. The average price target implies a 31% upside next year. The stock rose 0.8% on Thursday.
“Amazon is basically a favorite stock, not really based on today’s earnings, but how they perform in 2024 and 2025,” Globalt’s Martin said.
When it comes to its supply chain ambitions, “it may take a while for revenue to ramp up to the point where it really makes money,” he said.
—With assistance from Spencer Soper and David Watkins
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