FedEx Is Not Afraid of Amazon’s Delivery Ambitions

March 17, 2016, 6:01 PM UTC
Operations Inside the Fulfillment Center On Cyber Monday
An employee packs merchandise for shipment at the Inc. fulfillment center in Phoenix, Arizona, U.S. on Monday, Dec. 2, 2013. More than 131 million consumers are expected to shop Cyber Monday events, up from 129 million last year, according to the National Retail Federation. Photographer: David Paul Morris/Bloomberg via Getty Images
Photograph by Paul Morris — Bloomberg/Getty Images

Don’t worry about it.

That’s the message FedEx (FDX) delivered to investors over speculation that Amazon could develop its own delivery network and become a significant threat.

In recent months, Amazon (AMZN) has made moves to buy a French shipping company and struck a deal with Boeing to lease planes, fueling speculations that the e-commerce giant wants to take on the delivery industry.

FedEx said any fears are overblown.

“The reality is it will be a daunting task requiring tens of billions of dollars in capital and years to build sufficient scale and density to replicate existing networks like FedEx,” said Mike Glenn, CEO of Fedex Services during the delivery and shipment company’s strong third-quarter earnings call Wednesday. He added that Amazon seems to be developing facilities geared toward local deliveries, while FedEx works on a broad global network.

Glenn also moved to extinguish concerns that Amazon creation of a delivery network could also mean the loss of a major customer. He told analysts that no single client represented more than 3% of revenue.

And it seemed shareholders believed him. Amazon’s shares dropped 3% in trading Thursday, while FedEx shares soared 10%.

Glenn’s analysis was echoed by research analysts at RBC Capital.

“It would be extremely difficult if not impossible for Amazon to replicate the cost efficiency of FedEx, UPS, or the USPS delivery network,” RBC analysts led by John Barnes wrote.

Even if Amazon did create such a network, it “would likely take years to complete, so we believe FedEx and UPS would have time to react,” the analysts wrote in a separate note Tuesday.

RBC Capital raised the company’s price target form $153 to $157 Thursday.


But not everyone believes an Amazon threat is over and done with.

Nomura Securities lowered Fedex’s target price form $190 to $180 a share, saying that perceived competition from Amazon could still weigh on the stock.

“While any new entrant is unlikely to achieve similar network density and revenue per stop near that of Fedex and UPS for the foreseeable future, Amazon’s strategic moves likely remain a threat to sentiment over the near term, even absent any EPS risk,” wrote a team of analysts at Nomura Securities led by Matt Troy.

Shares of fellow parcel service UPS (UPS) also rose.

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