Is anything going to stop Amazon’s (AMZN) march towards world domination? It certainly won’t be COVID-19. If anything, the current crisis has highlighted its all-encompassing power, as a recent survey by investment bank RBC indicates.
In a research note to clients, RBC’s Mark Mahaney highlights the company’s recent Online Grocery trends survey, which indicates “growing adoption and a major inflection point in Online Groceries.” And who stands to benefit the most? You guessed it - online retail behemoth, Amazon.
“If AMZN is able to optimize the customer experience – a very challenging proposition in this environment – it stands to dramatically benefit, with Groceries becoming a material (10%+) portion of its Revenue by 2023, per our new analysis. Near-term Macro trends may dramatically deteriorate, but AMZN is establishing a long-term New Growth Driver,” the 5-star analyst said.
The results speak for themselves. Compared to 2018, when 36% shopped for groceries online, the number has moved up to 55%, with 42% doing so at least once a week (vs. 22% in 2018). The viral outbreak has acted as an inflection point, with 54% indicating a willingness to permanently shop online and a third making their first online grocery purchase during the crisis. No prizes for guessing the big beneficiary here; like in 2018, Amazon gets the bulk of traffic – 60%, beating Walmart’s 47%.
Mahaney reckons there is a $70 to $90 billion opportunity for Amazon here. Estimating Amazon Grocery’s GMV (gross merchandise value) to grow between 2020 and 2023 at a 24% 3-year CAGR (compound annual growth rate) to $88 billion, the figure will amount to roughly 11% of Amazon’s GMV.
For context, Mahaney notes, in FY20, Walmart’s grocery sales amounted to $250 billion, indicating that, currently, AMZN’s grocery sales are 1/10th in size. The analyst projects that by 2023, AMZN’s grocery sales will have reached 1/3rd the size of Walmart’s.
“Given that AMZN has now reached close to parity with Walmart in non-grocery retail sales, and Online adoption is dramatically greater today than it was 5, 10, 25 years ago, we believe our 1/3rd ramp is gut-check reasonable,” Mahaney concludes.
Accordingly, Mahaney reiterates an Outperform on Amazon along with a $2400 price target. Expect 20% upside, should the analyst’s thesis play out. (To watch Mahaney’s track record, click here)
Barring a single Hold rating, all 37 other analysts to have published a rating on Amazon over the past 3 months, rate the stock a Buy. With an average price target of $2,429.97, the Street forecasts upside of 21% in the year ahead. (See Amazon stock analysis on TipRanks)
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