CREDIT SUISSE: The headlines around the Amazon-Whole Foods deal have been focusing on the wrong thing
According to Credit Suisse Analyst Stephen Ju, delivery and order fulfillment services is where the money is at.
"While most of the headlines around the Whole Foods acquisition have been about price cuts, we believe the real path for Amazon to create lasting shareholder value is through fulfillment and delivery via Prime Now," Ju wrote in a note sent out to clients on Tuesday.
Ju believes it has a lot to do with untapped potential in the Amazon's Prime Now delivery service, which can deliver products to consumers within two hours.
As it currently stands, there is only a 50.4% overlap with Prime Now delivery service availability and Whole Foods brick-and-mortar stores. Ju predicts that the expansion of Prime Now to areas where it is currently unavailable will go from 50% to 70% of zip codes with Whole Foods stores by 2022. Should that number reach 100%, Amazon's value could increase by 22%, Ju says.
Additionally, Amazon has increased its spending on streaming and media content to compete with Netflix and Disney, and has injected cash into its ecommerce segments to better integrate its robot army of workers, which should also prime it for a solid third quarter, according to Ju.
This is welcome news after Amazon's second-quarter earnings fell short of Wall Street's expectations.
Shares of Amazon's are up 31.32% this year.
To read more about the next phase in ecommerce delivery, click here.
