- In addition to Amazon Web Services and its advertising initiative, Amazon has another fast-growing business — its business-to-business marketplace.
- Sales through Amazon Business have now reached an annual rate of $10 billion, and the marketplace is being used by “millions of businesses” around the globe.
- Total sales through the marketplace could exceed $25 billion by 2021, said Colin Sebastian in a new research note.
Amazon is known as the leading online store for consumers, but it’s quickly becoming a destination spot for businesses, too.
The amount of goods sold through Amazon Business, the company’s business-to-business marketplace, has hit $10 billion on an annualized basis, Amazon said in a blog post Tuesday. But by 2021, that amount, using “conservative” assumptions, should exceed $25 billion, according to a research note from Colin Sebastian, a financial analyst at Baird Equity Research.
“We believe Amazon [Business] over the very long-term has the potential to surpass the size of the core [consumer] segment, and remains an underappreciated opportunity by many investors,” Sebastian said in his report.
Investors and analysts that are bullish on Amazon have largely concentrated on Amazon Web Services, which is its fast-growing cloud-computing segment, and its booming advertising business. Few, by contrast, have focused on Amazon Business.
But it, too, is showing impressive growth — and lots of potential.
More than $11 billion in goods will likely be sold through the business marketplace this year, up from $1 billion in annualized sales just two years ago, Sebastian said. By contrast, Amazon’s consumer business took seven years to grow that same amount, he said.
In interview with Business Insider, Bill Burkland, who heads the UK operations of Amazon Business, noted that the company didn’t even launch its business marketplace until April 2015. Although the marketplace offers a wide range of goods, its most popular products are those with widespread appeal across many different kinds of businesses, such as PCs and janitorial supplies, he said.
To hit an annual run rate of $10 billion in sales through the marketplace in fewer than four years “is certainly a reflection that this is a big and fast-growing business,” Burkland said.
Business-to-business e-commerce is booming
The products sold through Amazon Business are sold by both Amazon itself and by third-party vendors. Those vendors now account for more than half of the total value of goods sold through the marketplace, according to Amazon’s blog post. Amazon gets subscription fees from the third-party vendors and takes a commission on their sales.
Amazon offers its business marketplace in eight countries, including the United States, Germany, and Japan. Earlier this year, the company opened it to customers in France, Spain, and Italy.
Although little attention is devoted to outside of industry publications, the business-to-business e-commerce market worldwide is huge, with some $7 trillion in sales last year, according to Sebastian, citing figures from Shopify. That’s more than three times as big as the consumer e-commerce market, which tallied about $2.3 trillion in 2017 sales.
With its big investments in recent years in warehouses and delivery services, Amazon is poised to become a major player in business-to-business sales, Sebastian said. Already, Amazon Business is used by 55 of Fortune’s top 100 US businesses, and 40% of the local governments in the 100 most populous US cities use the service, Amazon said. It’s also used by 80% of the top 100 US educational institutions in terms of enrollment, hosts some 150,000 sellers in the US, and serves “millions” of business customers worldwide, according to the company.
“Amazon has indicated in the past that over the very long-term, [Amazon Business] should be larger than its consumer business,” Sebastian said.
In his note, Sebastian reiterated his “outperform” rating on Amazon’s stock and his $2,100 price target. Amazon’s shares closed regular trading Tuesday up $48.14, or 2.5%, to $1,987.15.
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