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Amazon Likely to Bolster Presence in China With Unit Merger

Zacks Equity Research

Amazon AMZN is leaving no stone unturned to bolster presence further in the global e-commerce market on the back of its strategic moves and deepening focus on developing nations.

Reportedly, the company is looking for ways to strengthen its Chinese business unit in order to make the most of the world’s second largest economy.

In fact, Amazon is discussing terms about merging its China business with Kaola, a Chinese e-commerce firm owned by NetEase NTES.

Notably, Kaola sells apparel, household appliances and other products which are imported from overseas manufacturers.

China Holds Promise

Amazon’s strategic initiatives will aid it in capitalizing on China’s growth prospects. Notably, the online retail market of the country is witnessing a boom on account of increasing penetration of internet and mobile use.

Further, positive trends in the Chinese economy like mobile-first consumer behavior, rising social commerce adoption and growing digital payments are likely to continue bolstering the e-commerce sales in the near term as well as in the long haul.

Per a report from Forrester, the country’s online retail market is anticipated to reach $1.8 trillion by 2022. Further, sales in this market is expected to witness a CAGR of 8.5% between 2018 and 2022.

Further, an eMarketer’s report shows that China is anticipated to contribute 56% of the global online retail sales in 2019 which is expected to cross 63% by 2022.

We believe, with the latest merger plan, Amazon will be able to rapidly penetrate this potential market. This will aid in driving the company’s top line and profit generation in the future.

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Competition to Intensify

Amazon continues to be the dominant player in the global e-commerce space on the back of its robust retail strategies and distribution strength. However, its market hold is limited in China owing to the presence of Alibaba BABA and JD.Com JD.

Both the Chinese e-commerce companies are strong players in the country’s online retail market. However, Amazon by merging with Kaola, which is considered to be the biggest Chinese shopping site, might be able compete better.

If the merger initiative is successful, Amazon’s exposure in China’s online retail space is likely to expand which in turn will strengthen its market position.

This along with the company’s robust e-commerce platform and its expanding product collections and availability might intensify the market competition.

Currently, Amazon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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