While tech-giant Amazon.com competes with Apple to get more consumers to tote its tablets, Amazon has been also been planning a logistics business behind-the-scenes.
For its debut, Amazon announced the $775 million acquisition of order fulfillment company Kiva Systems this week.
So will it add FedEx or United Parcel Serviceto its list of rivals? The competition has already begun, says Ben Schachter, Internet analyst at McQuarie Securities.
“We don’t think anyone is going to be able to catch them anytime soon, in terms of their ability to more efficiently get goods to a consumer,” says Schachter.
Amazon’s stock is up 20.31 percent year to date, compared to Fedex , which is up 10.15 percent.
Though Amazon has built its $95.1 billion brand as an online retailer, Schachter thinks building a logistics arm will “better enhance the services they already provide, and help them sell more and more goods through Amazon.com.”
Investors, however, are concerned about the company’s margins. Will outlays such as the Kiva purchase hurt the bottom line near-term?
“Every quarter, the stock whips around based on what the margins look like. But we try not to play the guessing game quarter to quarter,” said Schachter.
Short-term the purchase may pose a risk, he says, but over the long-term “building out the ability to sell more goods will drive margins.”
Without offering a price target on the stock, which hovered around $205 on Tuesday, Schachter said he is bullish on the name.
“We still think Amazon has room to grow, because if you are selling something, you’ll be able to outsource all of your fulfillment needs to them, and sell it through their site,” he said.
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Disclosures:
Ben Schachter does not personally own AMZN stock.
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