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D.A. Davidson Sr. Research Analyst Tom Forte discusses the outlook for Amazon as it continues its 48 hour Prime Day event.
AKIKO FUJITA: We are seeing shares of Amazon getting a pop in the session, up about 1%. For more of a breakdown on the stock move, let's bring in Tom Forte, DA Davidson Senior Research Analyst. And Tom, it's always good to talk to you. You've got a buy rating on this stock with a $3,950 price target, so certainly more upside to come. How does Prime Day figure into your base case here?
TOM FORTE: Yeah, so some excellent data that you and your colleague just walked through. It's consistent with my thesis that in 2021, Amazon sales are going to be materially better than expected. So when you think about Prime Day last year, it was kind of Amazon doing the best it could under a very challenging situation by having Prime Day in the fourth quarter almost abutting Black Friday and Cyber Monday versus a more traditional June, July Prime Day. And I think what's important this year, and you're seeing in the numbers, is Amazon has more Fulfillment Center square footage and more staff, and that's enabling it to better meet demand for e-commerce and for Prime Day, and I think it will result in better-than-expected sales.
ZACK GUZMAN: Yeah, the Edison Prime date is also pretty interesting when you think about these other retailers, mainly Walmart, looks like, at least according to Edison Trends, catching the biggest coattail wave here as they try to compete with Amazon on Prime Day. Of course, they're never going to be bigger than Amazon on its own selling event. But I mean, how much does that increased competition maybe start to chip away at maybe some of the sustained rally we could see in Amazon as more retailers focus in on e-commerce?
TOM FORTE: Yeah, so I would argue that if you went back in the history of Prime Day one, two years in, you started seeing these complementary sales efforts from Target, from Walmart, from Best Buy. So I think that this is a pretty regular occurrence. And not surprisingly, they're taking advantage of a consumer who's in a shopping mood, not unlike other retailers during Black Friday and Cyber Monday. So I think that because this is a consistent behavior, this isn't the first time Walmart and Target have tried to play tag along, that I don't think it's going to materially chip away at Amazon's better-than-expected sales performance.
AKIKO FUJITA: Tom, when you think back to the origins of Prime Day, the idea really was to make the platform a bit more stickier to get people on or getting Amazon Prime so that they actually, essentially, pay in and keep coming back beyond these days. How much of that case has stuck around? I mean, how big of a bump are you anticipating for people to get Prime or those who already don't have it?
TOM FORTE: So I really think for this year's event, it is more consistent with the 2019 and earlier versions of Prime Day, which is it's a beta test for Amazon to make sure that it can meet a demand surge, including from a supply chain and logistics standpoint. And you think about the big difference Amazon '21 versus Amazon 2019 is it has a lot more first-party logistics efforts, their own drivers. So I do think it may have a nice bump to the number of Prime members, but I think it's going to be a great dry run to test their logistics for Black Friday and Cyber Monday this year.
ZACK GUZMAN: When it comes to the antitrust issues around Amazon, it was interesting in your note kind of highlighting the way that they may have been shifting search results on the site this time around, but still showcasing private-label items, I mean, when you look into that, is there any shift in strategy you see maybe to the mounting antitrust pressure there? Or is Amazon just going full steam ahead with what it's been doing for quite some time?
TOM FORTE: Yeah. No, that's an excellent question. And we've done now seven data sets on their private-label efforts, and the Future by Amazon search result is creeping up higher and higher on the page, which I do worry about from an antitrust standpoint. So I think the good news for Amazon is that I think that one potential outcome is a greater emphasis of third-party sales in the platform.
It's about 55% of units today. We think it could be 75% in the future. And to the extent that the antitrust scrutiny forces Amazon to lean in more into that effort, we think that could work out favorably, given the higher margin than when Amazon sells the product itself.
AKIKO FUJITA: When you look at the five bills that were recently introduced in the House, they do, or at least one of them, goes directly after Amazon and Amazon selling their own products on the platform. How significant is the downside, do you think, if, in fact, they can get this bill across the line?
TOM FORTE: Very significant. So great points on your end. We're monitoring the five House bills and the one bill in the Senate trying to determine how the government may try to rein in Amazon among its peers. And I think if you look at the easy outcomes, one of the legislations has a $600 billion market cap threshold.
So for Amazon, you'd have to cut it into more than three pieces to get under that number. So perhaps it separates its first-party selling from its third-party selling from its cloud computing effort, but that may not be enough. So I do think this is something that's important to watch. I have one eye on Prime Day, the other eye on antitrust regulatory risk, and it's very interesting time frames on right now.