3 Reasons Why Amazon Is Reportedly Interested In Home Design

Amazon.com, Inc. AMZN, which started out as an online retailer, followed its e-commerce play with ventures into businesses that include the cloud, home automation and entertainment. 

With reports suggesting the online behemoth is planning to tap into the home design and construction segment through a tie-up with homebuilder Meritage Homes Corp MTH, Morgan Stanley delved into what could be prompting such a move. 

The Analyst

Analyst Brian Nowak has an Overweight rating on Amazon with a $2,400 price target.

The Thesis

Amazon's move likely deals with attaching lockers to houses, placing multiple lockers in communal areas and installing smart garages into new homes in order to facilitate secure delivery of packages by couriers, Nowak said in a Friday note. 

Amazon has reportedly forged relationships with a group of upscale apartment buildings in Texas and Oregon to offer a service called "Easier with Amazon" that would give tenants "a free year of Amazon Prime, a free Amazon Echo with installation and Amazon lockers for deliveries," the analyst said. 

Nowak outlined three reasons for Amazon's purported interest in home design, which he said will have long-term benefits: 

• Apartment dwellers and homeowners would be conditioned to shop on Amazon.
• Echo-optimized appliances and homes would open up additional opportunities for the company in grocery, consumer packaged goods, digital media, home insurance, in-home security and more. 
• Amazon-designed homes could reduce theft losses and improve last-mile delivery efficiency.

The security and efficiency of last mile delivery is important, as Amazon is continuing to work on profitably growing and scaling its lower-margin, $800-billion grocery business through 1-2-hour delivery offerings, the analyst said. 

"Last-mile grocery shipping costs can make up 12 percent of revenue," Nowak said. "Improved delivery efficiency and throughput through digitally locked, temperature-controlled Amazon in-home boxes or mini 'Amazon receiving rooms' could materially help Amazon drive higher long-term profitability even as grocery grows in the mix." 

The Price Action

Amazon shares were down 2.17 percent at $1,634.26 at the time of publication Monday. 

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Photo courtesy of Amazon.