Wednesday, February 28

Amazon Stock: The King Of eCommerce (NASDAQ:AMZN)

Amazon Prime delivery truck on the road

georgeclerk/iStock Unreleased via Getty Images

Investment Thesis

Now that Amazon (NASDAQ:AMZN) announced the launch of Buy with Prime, Amazon will offer an appealing payment option at the point of sale for non-affiliated Amazon merchants as well as Prime members. Amazon will offer enticing payment options for merchants and consumers, which will enable them to develop strong moats amongst merchants and online retailers who benefit from the Amazon Logistics network, Fulfillment by Amazon (FBA) as well as Amazon’s massive network of more than 200 million Prime members. Buy with Prime will also allow Amazon to maximize its investments in its logistics and fulfillment divisions as well as its initiative to offer a formidable digital wallet.


Over the past two years, Amazon has ramped up its investments in its logistics and fulfillment operations. In last quarter’s earnings call, the company announced that it increased its capacity by 50%. This follows 2020, a year that Amazon saw an 80% increase in CapEx, which was primarily put towards investments in logistics and fulfillment centers to develop better forms of transportation and optimize Amazon’s distribution methods to lower its costs. I explored Amazon’s Logistics division in this note last fall. In 2020 and 2021, Amazon spent $80B to improve Amazon Logistics, which was more than the previous five years altogether.

Amazon continues to build its logistics and fulfillment businesses so that it gains the necessary scale to make better customer experiences possible, like same-day delivery, while Amazon optimizes its distribution strategy.

Amazon Flywheel


Amazon’s optimizing its distribution strategy for merchants selling on Amazon, but now with the launch of Buy with Prime, Amazon will offer its logistics and fulfillment infrastructure to third-party merchants so that they get the benefits of Amazon’s fulfillment and logistic networks as well as the benefits of being distributed on Amazon’s website as a Prime Product.

In this note, we will further explore why Buy with Prime is so significant from the merchants’ and end-customers perspectives. Amazon’s investments in its fulfillment and logistics divisions have allowed them to build infrastructure and develop a means to offer these services to third-party businesses, which enable Amazon to continue to reshape its customer experience as it unlocks new value-added services like same-day delivery. As Amazon expands its distribution of services for third parties, Amazon’s network effects strengthen as it better serves its customers and reaches economies of scale. This is what enables Amazon to reshape consumer expectations.

“Your margin is my opportunity.” – Jeff Bezos

Amazon will look to reshape the online checkout outside of Amazon by offering Amazon Pay, along with Amazon Prime at the online POS. In previous notes, I have shared my thesis for Amazon’s offline payments terminal, Amazon One, as well as my overarching thesis for Amazon to offer an appealing digital wallet for merchants as well as consumers.

Now, Amazon is focused on adding its digital wallet, Amazon Pay, to its long list of profit centers, as it has with AWS, Amazon Video, Kindle, etc. Amazon is known for its ability to capture its customers and their wallets before the customer even makes its way to the checkout page. Amazon captures a lot of data and uses it to better understand its customers and optimize its operations to offer lower prices. Amazon Pay will enable Amazon to embed the abundance of data it collects to offer consumers more appealing financial products, which will enable it to offer more competitive prices while promoting Amazon’s core services.” – Author’s Amazon Fintech Note

Amazon is strengthening its moats by now offering its distribution services to third parties while also offering businesses an ideal method to accept payments, with their items branded as Prime Products. This allows Amazon to further optimize its distribution methods internally as well as for non-Amazon merchants who use Amazon’s Logistics and FBA. Amazon is developing such a large network when it comes to its logistics and fulfillment divisions that enable them to increase its returns on investment as it scales, especially as Amazon offers payment methods to further control and understand its customers’ distribution methods to optimize its cost structure and create better customer experiences.

Buy With Prime: For Merchants

For merchants already using FBA, Buy with Prime can be added to their online store within minutes because their inventory is already stored in Amazon fulfillment centers. To get started, merchants sign up for Buy with Prime, link an Amazon Seller Central account, use Multi-Channel Fulfillment to offer one pool of inventory for multiple channels, and link an Amazon Pay account to offer a seamless checkout experience for Prime members. Then, by installing a JavaScript widget in their online store, merchants can easily add Buy with Prime to one or more products. With Buy with Prime, merchants will receive shopper order information, including email addresses for customer orders, which they can use to provide customer service and build direct relationships with shoppers.” – Press Release: Amazon Unveils Buy With Prime

Amazon Buy with Prime Checkout


Amazon will enable merchants and businesses the ability to offer the Prime shopping experiences and the benefits of Prime to their customers, even from their own direct-to-consumer websites. This allows the merchants to be in control of their customer experience, while Amazon still allows its merchants to develop brand loyalty while brands can offer fast, free delivery to Prime Members to help drive higher conversions. Payments registered and address information linked to one’s Amazon account are used and shared with independent merchants via their store’s website. Merchants will pay for this service based on usage fees, which will incentivize merchants to sell on the platform since their fees will correlate to the revenues the services generate and scale over time.

Using Buy with Prime, merchants simply pay for what they use. Pricing is based on a service fee, a payment processing fee, and fulfillment and storage fees that are calculated per unit. With no fixed subscription fee or long-term contract required, merchants can expand selection or cancel at any time.” – Press Release: Amazon Unveils Buy With Prime

Buy with Prime brings the seamless checkout experience customers have come to expect from Amazon to third-party merchants while giving merchants access to Amazon’s logistics and fulfillment network. This is extremely beneficial for merchants as they offer an appealing one-click checkout featuring the benefits of Amazon Prime. Buy with Prime will be offered by eCommerce service providers, including BigCommerce, as Amazon looks to distribute its one-click checkout as well its logistics and fulfillment infrastructure to merchants.

Buy with Prime represents a compelling value-add for BigCommerce merchants who wish to increase their sales and optimize the omnichannel experience they provide their customers. Prime set the bar for a shopping experience customers trust, including convenient and fast shipping… Extending these benefits to our merchants will help elevate their online shopper experiences, build brand loyalty, and power them to grow and scale.” Press Release: Amazon Unveils Buy With Prime

Amazon is rolling out Buy with Prime for merchants using Fulfillment by Amazon (FBA) with a wider rollout to follow later this year.

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Buy With Prime: For Consumers

Buy with Prime will allow millions of U.S.-based Prime members to shop directly from merchants’ online stores with the trusted experience they expect from Amazon – including fast, free delivery, a seamless checkout experience, and free returns on eligible orders. Prime members will see the Prime logo and delivery promise on eligible products in merchants’ online stores, which signals the item is available for free delivery, as fast as next day, with free returns. When shopping with Buy with Prime, checkout is simple and convenient. Prime members will use the payment and shipping information stored in their Amazon account and receive timely shipping and delivery notifications after an order is placed.” – Press Release: Amazon Unveils Buy With Prime

Prime members are more likely to spend outside of Amazon when they see the Prime logo next to an item while getting the benefits of Prime outside of Amazon, especially as their stored payments methods on Amazon will be an option when a consumer chooses to Buy with Prime. This further strengthens the benefits of being an Amazon Prime member while it creates strong network effects.

  • More consumers will join Prime if they can get the benefits of Prime outside of Amazon.

  • More merchants will look to sell Prime Products as more consumers are on the platform.

Essentially, Amazon has mastered the idea of aggregating demand to its platform and attracting suppliers to its platform to satisfy the demand. This in turn creates strong moats for Amazon, especially as Amazon makes it easy for its customers to pay through Amazon Pay. Amazon is building a payments gateway that connects with traditional payment methods like credit cards as well as new digital wallets or payment methods like Venmo (PYPL) or Affirm (AFRM).

We always aim to exceed Prime members’ expectations by offering more selection, exclusive deals, quality content, and convenient features. With the introduction of Buy with Prime, we’re expanding where members can enjoy trusted and convenient Prime shopping benefits beyond Amazon, adding even more value to their membership.” – Jamil Ghani, VP of Amazon Prime

Amazon + Affirm

Last summer, Amazon announced a partnership with Affirm that made Affirm Amazon’s exclusive BNPL provider in the U.S. through January of 2023. Buy with Prime is a significant development for Affirm because Affirm is a payment option that can be connected to one’s Amazon account, making it a payment option within Buy with Prime and an embedded payment method in Amazon Pay.

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As Amazon rolls out Buy with Prime, Affirm’s software-defined, data preserving, vertically integrated network will enable Amazon to maximize conversions at third-party checkout pages since Affirm’s network includes SKUs (stock-keeping units). If someone chooses to make a purchase using Affirm’s payment method through Buy with Prime, Amazon can leverage the data from the consumer and use that to inform the necessary parties in its network (i.e., the third-party merchant or product manufacturer). Since Affirm operates an SKU-based network, Amazon will leverage the data from merchants and their customers across the fulfillment process, especially since Affirm preserves transactional data at the point of sale, which will be preserved to inform and understand Amazon’s multiple networks (payments, logistics, and fulfillment) to ultimately optimize Amazon’s cost structure to drive better customer experiences.

If you compare and contrast [Affirm] to existing payment networks out there, one of the greatest missed opportunities, if you will, is the fact that they do not preserve the majority of the transactional data as transactions move through the system. So the entirety of all networks and certainly payment networks is really all about message-passing and it’s a tragedy and a giant opportunity that data doesn’t stick to the transactions as they move through the system and this extends far beyond the point of sale all the way out to financing for things like manufacturing and logistics, all the way out to rewards. And data just keeps on getting chopped off and then inferred later on or just completely discarded.

So the idea for Affirm has always been this notion of connecting all the financial dots by preserving the data from the very beginning when the consumer has intent that’s forming in their head, all the way out to the culmination of the transaction as the money changes hands and all the way out to fulfillment and should there be a dispute or repayment cycle, etc.” – Max Levchin, Affirm CEO

Affirm also enables new parties to subsidize a transaction, like a merchant’s product manufacturer, to promote transactions on specific SKUs by subsidizing 0% loans, which enables merchants to process more transactions and high conversion rates at the point of sale. Amazon could even subsidize 0% loans for third-party merchants to sell more products using Buy with Prime as Affirm will enable Amazon to subsidize a BNPL loan on a specific SKU or offer targeted advertisements that generate valuable data for future promotional campaigns.

Affirm’s management has maintained that there is a long roadmap with Amazon. Below is what Affirm’s Chief Financial Officer had to say regarding its partnership with Amazon at Bank of America’s Electronic Payments Symposium last month.

I think on Amazon, you’re not going to expect a big bang, but the patience should come in the form of – We’re working the program. We’re going to keep growing and expanding it. And it’s going to be a source of growth for quarters and years ahead because the program is nowhere near its optimized state. It does not have this big bang kind of flash-bang approach that you might see in other merchants or enterprise partnerships.” – Michael Linford

Affirm Amazon Pay Job Description

Above, is a job posting at Affirm, which details a position for a client manager working with Amazon Pay, supporting Amazon and Affirm’s vision for an extensive product roadmap ahead.

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Amazon will look to process more volume through Affirm as Amazon also generates deep insights when payments are processed through Affirm’s network. Affirm also bypasses the credit card networks which will also be attractive to Amazon as it can bypass the standard fees of the credit card networks. More on Amazon and why it will look to bypass the card networks using Affirm can be found in my initial Amazon FinTech article.

Amazon’s Fair Value And Expected Return


Forward 12-month revenue [A]

$540 billion

Potential Free Cash Flow Margin [B]


Average diluted shares outstanding [C]

530 million

Free cash flow per share [ D = (A * B) / C ]


Free cash flow per share growth rate


Terminal growth rate


Years of elevated growth


Total years to stimulate


Discount Rate (Our “Next Best Alternative”)


L.A. Stevens Valuation Model

L.A. Stevens Valuation Model

L.A. Stevens Valuation Model

L.A. Stevens Valuation Model

Based on our analysis, Amazon is worth ~$6,000 per share today, meaning it is more than 50% undervalued at its current valuation. For more discussion on why Amazon’s trading at such a discount, I invite you to read my partner Ahan Vashi’s article:

  • Amazon: Stock-Split, Buyback, Unions, And More

While Amazon trades below $3,000 per share, I label the company as a strong buy with attractive annualized returns of ~23% over the next 10 years.


Amazon’s one-click checkout solution won’t be ideal for all merchants, while there is a massive opportunity for Amazon to integrate its Buy with Prime payment option on other platforms similar to how BigCommerce (BIGC) merchants will have access to the integration. Buy with Prime is by no means riskless for Amazon as it now will be responsible for operating the fulfillment, logistics, and payment processing for companies that are eligible and choose to offer Buy with Prime to their customers. This will take time for Amazon to implement, but I expect that Amazon’s investments in its logistics and fulfillment divisions will pay off down the road as Amazon begins to scale its logistics operations for third-party merchants.

In 2010, Amazon launched Webstore, its platform for third-party merchants to operate their websites by enabling them to build scalable, secure online shopping experiences. However, Amazon went on to shut down Webstore in 2015 and proceeded to endorse Shopify in exchange for Amazon Pay to be a payment option as well as for Shopify merchants to sell on Amazon’s marketplace. If Amazon doesn’t have the infrastructure and or can’t meet the demand on its platform, then other eCommerce players will attempt to capture market share. Shopify is a competitor to Amazon, but the two don’t compete head to head as their offerings are slightly differentiated since Shopify enables merchants to build their own website while Amazon can offer its website as a means for merchants to get distribution to Amazon’s massive network of customers.

Now, Amazon will need to execute its strategy. In a future article, I plan to compare Shopify and Amazon’s eCommerce platforms.


Buy with Prime is a great opportunity for Amazon to wedge its digital wallet into the online checkout page at third-party merchants because it enables Amazon to further extend its network and operations all while becoming further integrated into the distribution of retail eCommerce. Amazon continues to bring together its business divisions by further compressing its tech stack and optimizing the customer experience, all while Prime members are more likely to Buy with Prime outside of Amazon because of the Prime benefits. This makes Amazon’s Buy with Prime an appealing payment method for consumers whether or not they are shopping at Amazon.

Amazon’s partnership with Affirm will enable them to track the transactional and alternative data within each transaction to enable Amazon to further optimize its go-to-market approach, which in turn lowers Amazon’s cost structure and drives better experiences.

I rate Amazon a strong buy below $3000.

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