Everyone knows Amazon.com (NASDAQ:AMZN) is a colossus. Jeff Bezos’ little online book selling company has transformed into a sprawling, global e-commerce, logistics and cloud services giant.

But do we fully appreciate the sheer scale and continuing growth possibilities of the company?

To drive the point home, RBC Capital Markets has published a report entitled The Magnitude & Meaning of AMZL. The ‘L’ stands for logistics.

RBC has an “outperform” rating on Amazon and a price target on the stock of $3,800, nearly 30 per cent higher from the current level, as of this writing.

This report contains some incredible charts showing Amazon’s amazing growth.

I don’t mean to be too effusive, and I stupidly have never owned the stock (I’m currently waiting for an entry point), but the charts really illustrate the strong, consistent growth for the company, which, according to RBC, will continue unabated for the next several years as Amazon, relentlessly and inexorably, gobbles up market share. 

Here’s a summary of RBC’s report by Mitch Steves:

Our view: We believe investors under-appreciate the magnitude of the strategy behind, and the implications of, the dramatic buildout in Amazon’s logistics network (what we are calling AMZL).

AMZL provides Amazon with major service and cost advantages that should shine through this holiday season and well beyond and helps creates a long-term opportunity for AMZN to become a leading third-party (3P) delivery service/carrier.

Key points:

The Magnitude Of AMZL: AMZN has disclosed that it is expanding its global distribution square footage 50 per cent this year.

Key context here this means Amazon is growing its network by 130 million sq feet—that’s 3X more than its network grew in 2019 and more than Amazon’s network has grown combined over the past three years.

For extra WOW, over the last three years Amazon will have grown its U.S. distribution network by 160 million square feet—about the same as Walmart’s distribution network growth over the last fifty years.

And with this growth has come verticalization—AMZN will soon be handling delivery from desktop to doorstop for 85 per cent of all its packages, covering 70 per cent of the U.S.

The Strategy Behind AMZL: Our detailed analysis of MWPVL (supply chain/logistics consulting company) data reveals that the fastest growing part of Amazon’s distribution network is its Delivery Stations (DS), hose facilities closest to consumers, and that growth has been in the number of DSs (up 17X in the U.S. since 2015 to 423) AND in the square footage per DS (up almost 3X to 150,000 square feet).

What this means is that AMZN has brought its inventory (selection) and delivery capabilities (service) dramatically closer to the consumer.


The Meaning Of AMZL: We believe AMZL provides AMZN w/ Four Key Benefits:

1) AMZL’s Service Advantage: By vertically integrating its logistics network and expanding its AMZL network, Amazon should be able to deliver a materially broader selection of inventory more quickly and more reliably than any other retailer. Evidence of this may come as soon as this holiday season, when COVID Christmas conditions will likely create substantial demand for online retail AND significant logistics challenges.

2) AMZL’s Cost Savings Advantage: We estimate that Amazon could save $2-$6 billion in last mile delivery costs, by further expanding its AMZL network, which could help the company realize cost savings in its global shipping costs and allow Amazon to continue to operate with materially lower (50 per cent) per-unit shipping costs than retail competitors.

3) AMZL’s Independence advantage: Amazon will be able to reduce its reliance on 3P services like the United States Postal service (USPS) (30 per cent of ’19 AMZN U.S. deliveries) and UPS (20%) which mitigates risk of potential supplier price increases.

4) AMZL’s Long-term Business Opportunity: Amazon could set itself up for long-term opportunities like a globally-based Shipping With Amazon (SWA)—eventually selling its excess distribution/logistics capabilities against a $300 billion global total addressable market, just like it did with its excess compute/storage capabilities when it launched AWS.


Exhibit 3: Sellers to Buyers – Amazon’s Delivery Process



Source: Company website; RBC Capital Markets; Google Images.


Exhibit 4: AMZL: A Snapshot



Source: MWPVL


1. Still Significant Secular Growth for Online Retail – We anticipate that online will continue to rise by ~100 basis points per year from the present 11 per cent U.S. online penetration level.

2. Clear Amazon Market Share Gains and a Path for More of the Same – By our estimate, AMZN already accounts for roughly 20 per cent of U.S. online retail sales, but its strong mobile positioning and infrastructure advantages facilitating next-day and same-day delivery should enable it to continue taking share.

3. New Revenue Growth Opportunities – Prospects include consumer staples, apparel, international expansion, Amazon Web Services, digital media offerings, office/ industrial supplies, and advertising.

4. Material Margin Expansion – Margins should be able to expand back to the 2003-10 average six per cent level and to long-term levels in the high-single-digit range.

5. One of the Best Management Teams on the Internet – We are positive on management given its consistency, operational and strategic track record, focus on innovation and customer service, and long-term shareholder orientation.

6. High Growth and High Quality earnings per share (EPS) – Even though AMZN has consistently traded at a premium valuation level, its sector-leading forward EPS growth outlook and its high EPS quality (very high free cash flow conversion) warrant a considerable market multiple premium.

The Biggest Risks to Our Long Thesis Remain:

(1) Operating Income and Margins – Mix shift to groceries and ongoing investments (international markets, AWS, Alexa, Go stores, AMZN Business, AMZN Video) for long-term growth to depress margins for extended periods.

(2) Competition – While a clear leader in online retail and cloud computing services, Amazon faces increasing competition from offline retailers, other online competitors, and cloud service providers.