Amazon.com's (AMZN) Next Leg of Growth Highlighted by RBC's Mahaney

RBC Capital analyst, Mark Mahaney, noted that In his latest shareholder letter, Jeff Bezos detailed the success of Amazon.com (NASDAQ: AMZN) "three big pillars" - Prime, Marketplace & AWS. He called them "bold bets at Amazon that worked" and stated that Amazon was searching hard for a Fourth Pillar. Asked about Fourth Pillar possibilities at this week's Code Conference in Los Angeles, Bezos briefly discussed Amazon Studios, Artificial Intelligence, and Shipping Logistics, while noting that a fourth pillar may not be evident for 10 years.

However, the analyst looked at the different possibilities for a fourth pillar and believes Shipping, Business Supplies, and Groceries have the most Pillar Potential for AMZN.

On Shipping, while this has the smallest TAM ($200B) of the 6 candidates, Market Inefficiencies are material (leading AMZN to already do half of its direct customer deliveries in the UK), AMZN has Current Competencies (with U.S. package volume levels at over 35% of UPS and almost 60% of FedEx), and AMZN Traction is already evident (with perhaps $3B-$4B in ‘16 indirect revenue). This Pillar's key advantage is that it also creates dramatic synergies with AMZN’s core cost structure & value proposition. Business Supplies is also a very attractive Fourth Pillar candidate with a much larger TAM ($5T), significant Market Inefficiencies (highly fragmented regional suppliers), and where AMZN is on track to generate $2B-$3B in ‘16 direct revenue. And Groceries is attractive as a category, given substantial Market Inefficiencies (convenience & selection), a $3T global TAM, and a revenue contribution to AMZN that we estimate is $5B+ in 2016.

No change to Outperform rating or $800 PT.

For an analyst ratings summary and ratings history on Amazon.com click here. For more ratings news on Amazon.com click here.

Shares of Amazon.com closed at $728.24 yesterday.

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