Keep your friends close but keep your enemies closer? That appears to be the stance taken by Amazon (NASDAQ:AMZN), when looking at its ecommerce rival Shopify.
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In a surprising move last week, the internet giants announced a deal that will enable Shopify merchants to provide ‘Buy with Prime’ on their Shopify stores. As such, Shopify users will be able to use the fast, free delivery service while also being eligible for returns via Amazon’s fulfillment network. Additionally, Amazon’s Prime loyalty club members will be able to check out with their Amazon accounts. A test service is already available, and a full U.S. rollout is slated to begin by the end of September
The decision is somewhat unexpected, considering that just one year ago, Shopify was advising its merchants against utilizing Amazon’s ‘Buy with Prime’ service due to a violation of Shopify’s terms of service. At that time, the company encouraged its merchants to opt for its proprietary payment and checkout solution, Shop Pay. Consequently, merchants interested in using Buy with Prime had to employ it separately from their Shopify administrative tools.
Amazon has said that ‘Buy with Prime’ drives an average 25% increase in shopper conversion. As such, Rosenblatt analyst Barton Crockett notes the feature should help sales for merchants who sign up.
Crockett also points out how Amazon stands to make good use of the deal on several levels. “This has benefits for Amazon, including promoting Prime subscriptions, leveraging greater economies of scale, and bolstering robust 3P momentum,” explained Crockett. “As big as Amazon is, there will always be more retail that happens outside its realm than within it. By spreading access to Prime, Amazon is grabbing economic benefits from non-Amazon shopping arenas,”
All of this underscores and reinforces the “massive and unique scale” of Amazon’s reach, says Crockett, who thinks this initiative indicates Amazon’s confidence in its retail capabilities and its potential to enhance margins through increased utilization.
All told, Crockett maintained a Buy rating on Amazon shares, backed by a $184 price target. The figure makes room for 12-month growth of 33% from current levels. (To watch Crockett’s track record, click here)
Of the 41 AMZN reviews submitted over the past 3 months, one remains on the sidelines, but all others are on board, naturally providing the stock with a Strong Buy consensus rating. The forecast calls for one-year returns of 27%, considering the average target clocks in at $175.63. (See Amazon stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
