Amazon stock will rise due to the expansion of its high-profit-margin private-label business.
Report are in that the Amazon Private Label Business is expceted to make $12 Billion In Sales for 2019.
SunTrust Robinson Humphrey analyst Youssef Squali reiterated his Buy rating for Internet giant, predicting strong growth for its Amazon-branded product offerings.
“The rise of private labels and exclusives is one of the least understood/most under-appreciated trends within Amazon,” he wrote on Tuesday. “This strategy should strengthen the flywheel effect of proprietary offerings/better user experience/higher retention/spend/share gain, and should prove accretive to margins over time.”
Amazon stock was down 1% on Tuesday to $1,679.00. The analyst reaffirmed his $2,250 price target, representing 34% upside to current levels.
Squali raised his 2022 private-label business sales forecast for Amazon to $31 billion from $25 billion. He estimates the segment will generate $12 billion sales in 2019 or up 40% year-over-year. The analyst said over time the private-label business can generate profit margins 7% to 15% higher than other products.
“Relative to selling branded products, private label allows Amazon to use its vast troves of (product and consumer) data to expand its product offering, and see what products in particular are most in demand,” he wrote.
The analyst said Amazon has added about 89 private labels over the past 18 months for a total of 128. He noted while most of the launches are in apparel, electronics still represent the majority of private-label revenue for the company.