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Can Martha & Marley Spoon Deal Boost Amazon Grocery Efforts?

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Shares of Amazon.com, Inc. (AMZN - Free Report) have underperformed the Zacks Internet Commerce Industry over the last six months. While the industry gained 6.61%, the stock gained 6.07%.

The company’s earnings missed the Zacks Consensus Estimate in the third quarter while revenues fell short of estimates in the fourth quarter of 2016.

We see slowing growth and mounting competition in e-commerce, and rising expenses as the main reasons behind the company’s dismal performance.

One of the several steps that Amazon has taken to counter the headwinds is the recent partnership with Martha & Marley Spoon. It is the retail giant’s latest gambit to increase market share in the grocery delivery space.

Customers can now buy Martha & Marley Spoon meals kits through AmazonFresh and combine other items from AmazonFresh in their orders. The service is primarily available to diners from New York, Dallas, San Francisco and Philadelphia metro areas.

The Martha & Marley Spoon brand is the result of a partnership between Sequential Brands Group, Inc. , and Marley Spoon, Inc. It offers a meal kit that combines recipe cards and pre-portioned foods that serve two.

Opportunities in an Attractive Industry

Per a Cowen & Company report, the U.S. grocery market (food and beverage, and other consumables) is expected to cross $1.3 trillion in 2017.

Grocery is expected to be a major driver of e-commerce growth between 2017 and 2022 with Cowen anticipating sales to increase from $70.6 billion in 2017 to $177 billion in 2022.

We believe Amazon will benefit significantly if it can go that extra mile to beef up grocery.  

Amazon.com, Inc. Net Income (TTM)

Diversification beyond E-commerce

The partnership is likely to boost AmazonFresh, the company’s grocery delivery service that was launched as a part of Amazon’s diversification initiatives, more so as its e-commerce business faces tough competition from Alibaba (BABA - Free Report) and eBay (EBAY - Free Report) .

Further, since Amazon’s first mover advantage is likely to moderate over time, and some market share erosion seems inevitable, counter strategies are essential. However, Amazon may also face competition from the likes of Wal-Mart, which has its own grocery delivery services.

Currently, Amazon has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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