Amazon’s Third-Party Merchant Boost

In the wake of a strong quarterly report last week, analysts cheered Amazon’s growth on the top and the bottom lines.

One boost came from Goldman Sachs, which, alongside its buy rating, also increased its price target to $800 from $720. The firm could, as Goldman Sachs Analyst Heath Terry said in a note cited by Seeking Alpha, see its gross merchandise volume this year reach $240 billion. The gross volume, added the analyst, would be given a tailwind by third-party sales growth.

As noted, the logistics operations at the firm have been gathering more third-party orders, which the Goldman analyst wrote shows “further evidence Amazon’s investment in infrastructure, logistics and Web services is accelerating market share gains, cash flow growth and continued high returns on invested capital.” Third-party units have grown to be 48 percent of the total, outpacing the 36 percent seen five years ago, and Fulfillment by Amazon was more than 38 percent of third-party business in the latest quarter, 600 basis points higher than last year.

The company saw its shares jump by as much as 12 percent last week in intraday trading after results were announced. The three business segments each posted double-digit percentage gains year over year in the March period. Online retail sales in North America were up 27 percent, international sales were up 26 percent and the Web services business logged 64 percent growth year over year (and this latter segment had more profit contribution to the firm than the traditional retail business).

The latest results marked the fourth profitable quarter in a row for Amazon, which showed adjusted earnings per share of $1.07, with a comparable $0.61 expected by The Street.