Amazon.com, Inc. (AMZN) just made news by snapping up Emvantage, an India-based online payment processing firm – a move that clearly telegraphs one of Amazon’s next plans of attack.
India has become an important area to watch for anyone holding Amazon stock ever since AMZN announced it would invest an additional $2 billion in the country back in July 2014 after launching in the country in 2013.
“After our first year in business, the response from customers and small and medium-sized businesses in India has far surpassed our expectations,” Amazon CEO Jeff Bezos said in a press release. “We see huge potential in the Indian economy and for the growth of e-commerce in India.
“With this additional investment of US $2 billion, our team can continue to think big, innovate, and raise the bar for customers in India. At current scale and growth rates, India is on track to be our fastest country ever to a billion dollars in gross sales.”
It would be foolish to suggest that Amazon stock has more than doubled since 2013 because of its commitment to conquering the Indian market. However, India is important for the future of AMZN — and the company is setting the right pieces in place there for the long-term.
India’s Infant E-Commerce Market
Morgan Stanley analysts recently upgraded their estimate of the Indian e-commerce market to $159 billion in 2020 from a previous estimate of $137 billion. The analysts also noted that India is adding three Internet users every second and is the world’s second-largest Internet market in terms of users.
This is where Amazon enters the picture.
While the U.S. market is flooded with e-commerce players, India’s market is not – it’s low on competition, and that’s largely because the market lacks the necessary digital infrastructure.
Amazon’s latest acquisition, Emvantage, allows online merchants to accept debit and credit cards for payment. And that would almost seem unnecessary, as according to a report by Quartz, roughly half of Amazon’s customers in India pay for their deliveries in cash.
Still, trends point to more card usage in the future, making Emvantage a very forward-looking play.
According to Euromonitor International, an independent market research firm, consumers in India’s urban areas in 2015 “started to prefer cashless and virtual transfer of money as it was more convenient and safe.”
India: A Trillion-Dollar Market for Amazon?
While Morgan Stanley’s analysts may be pegging the Indian e-commerce market in the hundreds of billions of dollars, AMZN’s own executives are pegging the market in the trillions of dollars.
Diego Piacentini, AMZN senior vice president for international retail, told Fortune that the opportunity in India is “so large it will be measured in trillions, not billions — trillions of dollars, that is, not rupees.”
It’s growing fast, too. India’s e-commerce growth is the quickest in the Asia-Pacific region, according to research firm eMarketer.
RBC Capital Markets’ Mark Mahaney commented in a report back in March 2015 that Amazon’s “relatively sizeable” presence makes it “reasonably well positioned” to dominate the market and generate “material contributions” within five to 10 years.
The analyst’s report may have been validated, as AMZN acknowledged it already is already a leader in the Indian market.
“In Q4 Amazon India was the top e-commerce site in India throughout the very busy diwali shopping season, including the shopping season, according to comScore,” Amazon CFO Brian Olsavsky said during Amazon’s fourth-quarter conference call. “And sales by sellers in Q4 were greater than all of 2014 combined in Q4.”
Bottom Line: Think Long-Term on Amazon Stock
Amazon stock is a long-term play, and should be treated as such. If you’re in it for the long haul, ignore any short-term volatility — and it’s AMZN, so there will be short-term volatility.
AMZN’s build-out of its North American empire continues to this day with new fulfillment centers, innovative products and services such as Amazon Web Services and the Kindle tablet.
Now, Amazon stock investors should be excited over the prospect of management duplicating its long-term vision in hot-growing India.
As of this writing, Jayson Derrick did not hold a position in any of the aforementioned securities.
