Amazon.com Inc (NASDAQ:AMZN)’s recently announced expansion of grocery delivery and free pickup through Amazon Fresh to customers without a Prime membership is expected to be an important driver of its growth over the next five years, according to BofA Securities analysts.
In an update to clients, they maintained their ‘Buy’ rating on Amazon stock while noting the e-commerce giant’s announcement suggests the company believes it has found a more favorable store format, and October's adjustment to its free delivery threshold (to $100 from $150) signals the company may have improved delivery economics to a point where a $100 order can be closer to breakeven.
"Expanding to non-Prime customers could drive further network density and scale, which is critical for grocery delivery economics," the analysts wrote.
They added, however, that renewed grocery investment could raise some 2024 margin concerns, but investment seems regional and measured so far as the company is actively refining the economics of its store formats before making a bigger national push.
As well, they stated that Amazon's partnership with local grocers will likely reduce some investments required to build supply and infrastructure.
Analysts at BofA added that the US grocery market in 2023 is valued at $1.2 trillion with about 13.5% online penetration, which is projected to grow at a 12% three-year compound annual growth rate, with Amazon's latest push into the industry signaling increasing competitive intensity.
Shares of Amazon.com edged 0.3% lower to $143.13 in late-afternoon trading on Monday and have gained 67% year to date.
Contact Sean at sean@proactiveinvestors.com