Amazon.com Inc.'s quickly flourishing expansion into the grocery industry not only justifies its rallying stock price but means the shares are poised to climb even higher, an analyst predicts.
Nomura Instinet analyst Anthony DiClemente wrote to clients in a note that tapping into the grocery industry remains one of the "largest and most under-penetrated markets" for the Seattle e-commerce giant, CNBC.com reported.
Amazon has been expanding in online food and grocery sales as it seeks to increase its product offerings. This year, it opened drive-in grocery locations in Seattle, its home town, as part of a renewed effort in the business, Bloomberg reported.
AmazonFresh, a grocery delivery service available exclusively for Prime members, is being tested and rolled out across more states, and Amazon Go, which boasts providing shoppers a checkout-free experience, is in the early stages of beta testing, CNBC reported.
DiClemente has increased his target on Amazon's stock to $1,100 from $975 a share, representing a nearly 13 percent upside from Wednesday's closing price of around $976 per share. Near midday Thursday, Amazon stock was at $958.64.
"In our view, Amazon is likely to grow sales marginally faster than Walmart … and substantially faster than Costco," he wrote.
Wal-Mart and Costco are two major players seen as making moves of late to steal a larger share of the grocery market, as more competitors, like German-based grocer Lidl, open up shop in the U.S., CNBC reported.
Amazon also is in preliminary talks to buy the Indian grocery site BigBasket, as the American company steps up efforts to gain ground in the fast-growing market, according to people familiar with the matter told Bloomberg.
The discussions are at an early stage and may not lead to a sale, the people said, asking not to be identified as the negotiations are private. BigBasket, run by SuperMarket Grocery Supplies Pvt, is India’s largest online grocer and operates in about 25 cities across the country.
A spokesman for BigBasket said that it’s untrue that Amazon is in talks to buy the firm. A representative for Amazon declined to comment.
Amazon Chief Executive Officer Jeff Bezos has vowed to spend $5 billion in India in coming years as he competes against local rivals. Amazon’s success in the country has pushed the two largest domestic e-commerce players, Flipkart Ltd. and Snapdeal, into a preliminary agreement to combine.
BigBasket raised $150 million last year in a funding round led by Dubai’s Abraaj Group, and its backers also include Bessemer Venture Partners and Helion Venture Partners. In March, BigBasket raised 450 million rupees ($7 million) in venture debt from Trifecta Capital to set up new warehouses and strengthen its delivery network.
Amazon and BigBasket have not yet agreed to any specific terms, said one of the people. BigBasket has also had discussions with private equity firms, the person said. The startup has been boosting revenue quickly and has reached break-even in two cities, the person said.
In India, the company has sought approval to invest and partner with the government in food supply. Amazon said in an email in February that it has sought a license for food retail trading from the government’s Department of Industrial Policy and Promotion, which oversees foreign investments into the country. Amazon plans to invest close to $500 million in online food retailing, one government minister said in March.
To be sure, Newsmax Finance Insider Charles Sizemore told Newsmax TV that Amazon is about to "upend the grocery industry" as it plans to expand its grocery business with shops that let people quickly pick up milk, vegetables or other perishable foods.
"Amazon is trying to get your grocery dollars for a very good reason,” Sizemore told Newsmax TV’s JD Hayworth.
“Groceries, while they are a low-margin business, it's still something that every American pays for, usually on a weekly basis. If you're already buying your groceries at Amazon, you might also buy something that's higher margin,” he said.
"Amazon's smart, they know what they're doing here," he explained. "I have a feeling they're about to really upend the grocery industry. It's about to get really interesting. It's just not quite what everyone's expecting."
(Newsmax wire services and Reuters and Bloomberg contributed to this report).