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)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.