If I were Target Corporation (NYSE:TGT) CEO Brian Cornell, I would tell my executive assistant to gladly take all calls from Amazon.com, Inc. (NASDAQ:AMZN). It could be the difference between a $70 TGT stock and one well north of $100.
Amazon Wants Offline
By now we all know the speculation: Amazon is going to buy Target to give the Seattle e-commerce giant the brick-and-mortar presence that Whole Foods couldn’t.
“Amazon believes the future of retail is a mix of mostly online and some offline. Target is the ideal offline partner for Amazon for two reasons, shared demographic and manageable but comprehensive store count,” Loup Ventures analyst Gene Munster wrote New Year’s Day. “As for the demographic, Target’s focus on mom[s] is central to Amazon’s approach to win wallet share.”
We can argue all day whether Munster’s thesis is correct, but there’s no denying that Target’s 1,834 stores in the U.S. would give Amazon a much more significant offline presence than the Whole Foods acquisition which brought 453 locations across the country into the fold.
If, and it’s a big if, Amazon wants to grow its offline presence, Target increases this four-fold albeit by spending a lot more than it did to buy Whole Foods.
Buyout Makes Sense for Both Companies
First, consider that Amazon generated 44% of U.S. e-commerce sales in 2017. Furthermore, more than 50% of all product searches start on Amazon’s website, giving it a clear advantage over the rest of the field.
It’s going to be hard for anyone to cut into that market share, so Target and the rest of the country’s retailers are left to fight for $130 billion in e-commerce revenue.
Tracker eMarketer estimates Amazon’s e-commerce revenues at $101.4 billion giving us a $231 billion total based on 44% market share, which means Target’s online gains will have to come by taking market share from everyone else but Amazon.
That’s a daunting proposition and not welcome news for owners of TGT stock especially when you consider that Target didn’t make a list of the 20 most popular U.S. websites amongst international consumers in 2017.
Heck, even Toys “R” Us was more popular.
Target needs Amazon’s online presence in a big way, but conversely, Amazon needs Target’s offline presence with just 4% of total retail sales in this country.
Target brings approximately $70 billion in annual sales to the table, 96% of which is generated in the stores. Adding Target to Whole Foods would bring revenues for Amazon to a 54/46 split between e-commerce and brick-and-mortar, a far more balanced attack while also moving the needle on the 4%.
Bottom Line on TGT Stock
My most recent article about TGT stock was in November. At the time, I wondered if Target could get back to $80.
I reasoned that a good holiday season would be critical to TGT stock hitting $80; while all the numbers aren’t yet in, retail sales during the all-important holiday shopping season grew the most since 2011 suggesting Target should be just fine.
A lot of people think the talk about Amazon buying Target is just that. However, I see both companies benefiting from a buyout.
Perhaps, I should have asked if Target is going to hit $120.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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