Amazon Business Could Be Amazon's Next Great Success

Amazon is known as the first online store for consumers, but it is quickly becoming a destination for businesses.

The amount of merchandise sold through Amazon Business, the company's B2B market, has reached $ 10 billion on an annualized basis, Amazon said on a blog Tuesday. But in 2021, this amount, using "conservative" assumptions, is expected to exceed $ 25 billion, according to a research note from Colin Sebastian, a financial analyst at Baird Equity Research.

"We believe Amazon [Business] on the very long term has the potential to exceed the size of the core [consumer] segment, and remains an underestimated opportunity by many investors, "Sebastian said in his report.

Investors and analysts who are optimistic about Amazon have largely focused on Amazon Web Services, which is its rapidly growing cloud computing segment, and its booming advertising business. In contrast, few of them focused on Amazon Business.

But it also shows impressive growth and a lot of potential.

More than $ 11 billion worth of merchandise will likely be sold in the corporate market this year, up from $ 1 billion in annualized sales two years ago, Sebastian said. On the other hand, Amazon's mainstream business took seven years to increase that same amount, he said.

In an interview with Business Insider, Bill Burkland, who leads the British business of Amazon Business, noted that the company had not even launched its market before April 2015. Although the market offers a wide range of products, its products the most popular are with widespread appeal in many types of businesses, such as personal computers and janitorial supplies, he said.

Achieving an annual market sales rate of $ 10 billion in less than four years "is certainly a reflection of a fast-growing business," Burkland said.

Business-to-business e-commerce is booming

Products sold by Amazon Business are sold by Amazon itself and by third-party vendors. According to the Amazon bill, these suppliers now account for more than half of the total value of goods sold on the market. Amazon collects subscription fees from third party vendors and charges a commission on their sales.

Amazon offers its commercial market in eight countries, including the United States, Germany and Japan. At the beginning of the year, the company opened its doors to customers in France, Spain and Italy.

According to Sebastian, quoting Shopify figures, the business-to-business e-commerce market is huge, with about $ 7 trillion in sales last year. That's more than three times more than the mainstream e-commerce market, which totaled about $ 2.3 trillion in 2017.

With significant investments in warehouses and delivery services in recent years, Amazon is poised to become a major player in business-to-business sales, Sebastian said. Amazon Business is already used by 55 of Fortune's 100 largest US companies, and 40% of local governments in the 100 most populous cities in the US use this service, Amazon said. It is also used by 80% of the top 100 US educational institutions in terms of enrollment, hosts some 150,000 vendors in the United States, and serves "millions" of commercial customers worldwide, according to the company.

"Amazon has indicated in the past that in the long run, [Amazon Business] should be bigger than its consumer business, "said Sebastian.

In his note, Sebastian reiterated his rating of "outperforming" on Amazon's stock and its price target of $ 2,100. Shares of Amazon closed Tuesday up $ 48.14, or 2.5%, to $ 1,987.15.