Amazon: The E-Commerce Gorilla Needs A Map

| About: Amazon.com, Inc. (AMZN)

Summary

Media reported that AMZN is in talk to acquire a stake in mapping software HERE.

HERE would be accretive to AMZN's logistics ambition given the importance of reliable map content.

Remain bullish on AMZN. The stock is my top pick to play the North American ecommerce trend.

Reports indicate that Amazon (NASDAQ:AMZN) is reported to be in talks with German carmakers about taking a stake in the digital mapping unit, HERE, which the automakers acquired from Nokia (NYSE:NOK) last year. (see - Nokia: The Rising Value Of A Map). The initial negotiation centered around the possibility of AMZN taking a stake to be a provider of cloud computing services to the automakers given the data and processing intensity involved with live-map updates but I see a long-term strategic rationale for AMZN taking a stake given the importance of mapping assets on e-commerce as AMZN ramps up on its own logistics fleet.

In addition, AMZN could lower its logistics cost by rolling out autonomous vehicles as the regulation on drone delivery and autonomous driving becomes more established. Worth noting, AMZN's interest in HERE is similar to that of Alibaba (NYSE:BABA) acquiring China-based Autonavi several years ago in an effort to consolidate its logistics capability. I remain bullish on AMZN on the back of this news and reiterate it being my top pick for North American e-commerce.

HERE was sold to a German auto consortium for $3.1b last year, as the automakers were looking to gain an edge in the autonomous car race against Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and potentially Baidu (NASDAQ:BIDU). Recall that the digital map is the basis for autonomous driving and having a quality asset is critical to ensuring product safety, security and reliability.

Acquiring a stake in HERE allows AMZN to gain access to one of the most valued map assets globally. Besides HERE, GOOG, Apple (NASDAQ:AAPL), BABA are all developing their own proprietary map assets to gain an edge on location-based services, O2O and logistics. Given that the internet rivals compete against AMZN in one or several business areas, HERE is the logical choice given that AMZN's long-term interest is unlikely to conflict with that of the automakers.

In the near term, a stake in HERE could allow AMZN to test its AWS capability involving map-data processes, which could be intensive given the importance of real-time updates, voice recognition/command, intelligent rerouting, location-based notifications/alerts and so forth. The benefit for the German automakers is to diversify the cost in cloud computing and improve the volume of data.

The long-term implication directly benefits AMZN in that a quality map asset is critical for its ground logistics fleet as its Prime membership expands and the demand for unlimited free 2-day shipping increases. Leveraging big data and AI to map out the optimal route is essential for the ground fleet to meet timely deliveries. Over time, as regulation on drone delivery becomes more established, it is very likely that AMZN will incorporate HERE into all of its drone fleet for accurate package delivery. Although it is too early to determine the economics of HERE on AMZN's drone delivery, it is fairly safe to say that AMZN's drones will depend on HERE for flawless execution.

Trading conclusion: remain bullish on AMZN.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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