Amazon is becoming more of a mall than a retailer
- Amazon on Thursday posted quarterly earnings that beat analyst expectations.
- As third-party sales increase more than its own products, Amazon is looking more like a mall than a single retailer, an analyst says.
- Follow Amazon's stock price in real-time here.
Amazon's revenue from third-party sellers, companies like Nike who sell their own products via Amazon's platform, rose 44% year-over-year, the company said in its quarterly earnings report on Thursday.
That has the e-commerce giant looking more like a mall and less like an individual retailer, Nomura Instinet told clients Friday.
"Although still growing a remarkable 18%, Amazon continues to see a shift in sales penetration as EVERY part of its business grows faster than its first-person retail sales; e.g. third-party services, retail subscriptions, AWS and other all showed impressive acceleration," analyst Simeon Siegel said. "As AMZN becomes more mall than retailer, its margins reflect more servicer than seller."
While the company's expenses rose 42% to about $49 billion in the first quarter, its margins are expanding even more quickly, up to 37.8% from 22% in 2010, according to financial statements. Most of that growth isn't coming from sales on Amazon.com, it's coming from third-party sales and its new flagship product, Amazon Web Services, which grew 49% year-over-year.
On its earnings call, Amazon announced it's increasing its Prime subscription price by $20 annually for new members beginning this spring, and for renewals shortly thereafter. Nomura estimates this increase will translate to an additional $1 billion to $1.5 billion of revenue.
"A key component of our Buy thesis remains the massive capital firepower AMZN's is generating through its mix shift to high margin categories, allowing for perpetual reinvestment," Siegel said. As Amazon adds more services to Prime, it becomes more of a staple for consumers, and less of a discretionary spending item, virtually guaranteeing Amazon that revenue.
"We view AMZN's ability to dig its selling, general and administrative expenses (SG&A) moat as dependent on GM rate expansion and with product costs unlikely to ease, mix shift to higher margin segments is key to GM expansion, which is key to SG&A reinvestment."
Shares of Amazon jumped to an all-time high of $1,638.10 following its stellar earnings report Friday, fueled by earnings more than double what Wall Street had expected. Nomura says they can go even higher, to $1,755 - another 10% higher than where they were trading Friday morning.
