Investing.com -- Amazon (NASDAQ:AMZN)'s expansion into Logistics-as-a-Service (LaaS) marks its latest push into a more than $100 billion market opportunity, leveraging the vast infrastructure it has built over the years.
The initiative, branded as "Supply Chain by Amazon," aims to provide end-to-end logistics solutions not just for its own marketplace but also for third-party sellers, both online and offline.
This move is seen as a natural extension of Amazon’s existing services, much like how AWS evolved from an internal tool to a global leader in cloud computing.
“With Amazon now controlling ~48% of US e-commerce (our estimate) and with AWS and Advertising growth normalizing, we believe the company is putting together the building blocks for its next major driver of growth,” Truist Securities analysts said in a Tuesday note.
The initiative includes a suite of services designed to manage virtually the entire logistics process for merchants. These services range from picking up inventory at manufacturing facilities, often in China, to handling customs clearance, ground transportation, storage, and last-mile delivery.
The platform is set to serve a diverse client base, from large enterprises needing to move bulk freight across borders to smaller direct-to-consumer (DTC) companies seeking Amazon’s logistical support.
According to Truist, the new venture mirrors the playbook Amazon successfully used with AWS. By turning what was once a major cost center into a profit-generating business, Amazon aims to repeat this success in logistics.
“AWS grew from $1.8B in revenue in 2012 to $105B revenue run rate (as of 2Q24) with $38B in segment op. income,” Truist analysts wrote.
Similarly, Amazon’s logistics services are positioned to become a significant revenue stream, potentially doubling its freight services revenue over time and expanding its share of the global third-party logistics (3PL) market from 10% to 20%.
‘Supply Chain by Amazon’ also offers several strategic advantages, analysts highlighted. It allows Amazon to tap into the vast offline commerce market, which still accounts for over 80% of all commerce in the U.S. and worldwide.
Furthermore, by integrating these logistics services with its existing e-commerce and cloud offerings, Amazon can lower its unit costs for its core Retail segment, giving it a competitive edge over other logistics providers.
Amazon's logistics platform is already substantial, operating in over 100 countries with more than 150 fulfillment centers. This infrastructure, which powered $750 billion in gross merchandise volume (GMV) in 2023, is now being opened up to non-Amazon merchants.
“This undertaking is enormous, froth with execution and financial risk as it requires impeccable coordination of far-flung capabilities and investments to build scale in the face of massive competition,” Truist states.
“That said we believe that Amazon has a material head start over competitors considering the size and scope of its existing logistics network.”
Truist analysts reiterated a Buy rating on Amazon stock, with a price target of $230.