Amazon Staring at $100 Billion Opportunity with Logistics Network
Amazon is on the cusp of unlocking a $100 billion opportunity, having made a name for itself as an e-commerce juggernaut. While the focus has been on the company’s growing cloud unit, the tech giant’s robust supply chain network has the potential to take the company to new heights.
Unlocking Logistics Opportunity
According to Truist Securities analyst Youssef Squali, Amazon becoming a logistics shipping and distribution juggernaut could unlock more than $100 billion in revenue. Everything hinges on the Seattle-based company turning its logistics network into a service offering for third parties or Amazon merchants.
Amazon has enhanced its supply chain network as part of an effort to improve same-day delivery. Consequently, it has become a leading logistics company overseeing orders’ flow to people’s doorsteps. By opening up the network to third parties, the company will have the potential to unlock value as ocean freight. It will also be in a position to enable ground transport and inventory storage through which it can unlock significant value.
The tech giant has already started integrating artificial intelligence technology into its supply chain network. The integration ensures the network runs efficiently and that goods are shipped efficiently without any mishaps and delays. For instance, the company is using the technology to safeguard some goods stored in facilities where demand is high, limiting the shipping time.
It would not be the first time the tech giant has opened a service initially designed for in-house operations. The company unveiled the cloud business to serve its own needs. However, with the growing demand for cloud solutions, the company built Amazon Web Services and opened it to other clients. The cloud unit has become a multi-billion empire and a key earnings driver.
Amazon opening up its logistics network is a brilliant idea that would create yet another empire and diversify its revenue base beyond e-commerce and cloud. The company is under immense pressure to unlock new opportunities and offset a slowdown in revenue growth.
Amazon’s revenue growth slowed to 9% last year, marking the slowest-ever expansion. Nevertheless, it is expected to bounce back and rise by 11% to $570 billion in 2023. Therefore, unlocking new revenue opportunities on the supply network could strengthen the company’s sentiments in the market.
Amazon Valuation
Amazon stock is up by more than 50% year to date, outperforming the overall market. The impressive run has come against the backdrop of the tech giant embarking on a cost-cutting drive to boost profits. Faced with rising inflations and declining consumer spending power the company was forced to lay off staff as part of cost saving measure. It has also had to shelve some ambitious plans to save on costs.
While the company’s valuation has dropped since last year, it still trades at 34 times projected profit, one of the most expensive of other big technology companies. The premium valuation is yet to deter analysts from bullish on the sock, with 63 analysts tracking the stock insisting it is a Buy. The average price target implies Amazon stock has the potential to gain over 30% from current levels.
