Mark Mahaney said Amazon’s acquisition of Whole Foods is a ‘natural pivot’ to home delivery for the company.
Amazon ‘s move to acquire Whole Foods is a « natural pivot » for a company that « doesn’t buy fixer-uppers, » said Wall Street analyst Mark Mahaney on CNBC’s » Power Lunch » Friday.
« Amazon’s been signaling for about one or two years that they’re going to make big bets, because they can, because they’ve got the cash flow to do it, so that makes this less of a surprise, » said Mahaney, an analyst at RBC Capital.
« They already do about $5 billion a year in groceries, » Mahaney said. « This is a logistics business, Amazon does logistics, and it’s kind of a natural pivot for the company. »
Whole Foods stock jumped more than 30 percent to about $43 per share on Friday, following Amazon’s announcement that it plans to acquire the high-end grocery chain in a deal valued at $13.7 billion. Amazon’s stock was up 3.6 percent.
In the first quarter of 2017, Whole Foods announced it was closing nine stores and abandoning a goal to open 1,200 more stores. But Mahaney said the acquisition doesn’t suggest that Whole Foods was in an especially weak state.
« Amazon doesn’t buy fixer-uppers, they buy assets that they think are high quality that can stand on their own, and then they maybe look for incremental synergies, » Mahaney said.
Mahaney said the move to « heavy » brick-and-mortar assets in the grocery market was a « big acceleration » for Amazon, which had dipped into ventures such as bookstores in recent years.
Whole Foods and Amazon share some of the same demographic trends, according to data from the NPD Group. Sixty percent of millennials are Amazon buyers, compared to 42 percent of consumers generally. And 24 percent of millennials bought something from Whole Foods last year, compared with 20 percent of all consumers.
« My guess is that the play here is going to be the home delivery that’s going to be accelerated by Amazon, not only groceries but prepared meals as well, » Mahaney said.
President Donald Trump has been outspoken in his criticism of Amazon’s CEO, Jeff Bezos, particularly as a presidential candidate on the campaign trail. In May 2016, Trump said Bezos was « getting away with murder tax-wise, » and that he had « a huge antitrust problem because he’s controlling so much, Amazon is controlling so much of what they are doing. »
The president has yet to fill three vacant seats on the Federal Trade Commission, leaving the possibility open for an anti-tech appointee to drive a wedge in Amazon’s acquisition.
« Theoretically, they could put someone at the head of the FTC, fill those slots with someone who might be skeptical about this deal, » said James Pethokoukis, DeWitt Wallace Fellow at the American Enterprise Institute, on « Power Lunch. »
« But you would think just on the merits alone, that would be so overwhelming that there would not be a problem, » Pethokoukis said.
