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April 29, 2019, 7:51 a.m. EDT

Amazon’s move to one-day shipping shows the competition is catching up

The move will cost $800 million in the second quarter, but analysts think it’s worth it

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By Tonya Garcia, MarketWatch

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“[T]he move will widen the convenience/logistical gap with competitors, which had narrowed in recent years as other retailers enhanced their shipping capabilities,” Stifel analysts led by Scott Devitt wrote. “Amazon is early in ramping up this initiative and the total cost to offer the service is difficult to estimate at this time. Relative to previous investment cycles, Amazon is in a more favorable position from a margin standpoint given the development of AWS and its emerging advertising business.”

Stifel rates Amazon stock buy with a $2,300 price target.

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There were a few sour notes during the quarter that Benchmark’s Daniel Kurnos points out, among them a deceleration in international revenue growth and a miss in physical-store sales despite additional price cuts at Whole Foods Market as some purchases have moved online.

But even with those negatives, Amazon has the edge with one-day shipping.

“This move should only solidify Amazon’s dominance in the marketplace, forcing competitors to react with less supportive infrastructure backbones, and while likely to be expensive over the medium-term, Amazon has already shown increasing economies of scale even as delivery times shrink,” Benchmark wrote.

“After a year in which offline retailers were lauded for evening the playing field, Amazon once again will likely retake share, solidifying what should remain a high-teens/low-twenties percent revenue growth rate.”

Benchmark rates Amazon stock buy with a $2,300 price target.

In all, 13 analysts surveyed by FactSet raised their stock price targets, while one lowered, to lift the average target to $2,184.54, from $2,128.32 before the earnings report.

Amazon stock has rallied nearly 30% for 2019 so far while the Amplify Online Retail ETF /zigman2/quotes/206522380/composite IBUY +1.49% has experienced a 27.5% gain. The S&P 500 index /zigman2/quotes/210599714/realtime SPX +2.62%   is up 17.3% for the period.

/zigman2/quotes/206522380/composite
US : U.S.: Nasdaq
$ 68.70
+1.01 +1.49%
Volume: 210,211
June 5, 2020 4:00p
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US : S&P US
3,193.93
+81.58 +2.62%
Volume: 4.80B
June 5, 2020 5:07p
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Tonya Garcia is a MarketWatch reporter covering retail and consumer-oriented companies. You can follow her on Twitter @tgarcianyc. She is based in New York.

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