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Initiation of Research Coverage for Three E-commerce Companies

Friday, June 10, 2016

William Blair & Company initiated research coverage of three e-commerce companies:, Inc. (AMZN $723.74), Wayfair Inc. (W $41.97), and Blue Nile Inc. (NILE $26.38).

In a report on, e-commerce analyst Ryan Domyancic and software-as-a-service analyst Bhavan Suri wrote, “The infrastructure-as-a-service (IaaS) market is forecast to grow from $12 billion in 2015 to $62 billion in 2020, and we expect Amazon Web Services (AWS) to maintain its leading market share position over the duration of our forecast. In addition, AWS offers several services that address other segments of the enterprise software market. Adding in these segments, we believe the total addressable market is about $30 billion and should grow at a 26% compound annual rate through 2020, reaching $94 billion.”

They added, “Despite increasingly aggressive competition from Microsoft and Google, our research suggests that Amazon maintains very high win rates. We believe this can be attributed to the company’s significantly greater feature depth, geographical footprint, and industry mindshare.”

In a separate report on Wayfair, Domyancic and hardlines analyst Daniel Hofkin wrote, “We believe the U.S. market for home goods will reach $251 billion in 2016 and estimate that 9% ($23 billion) of U.S. home goods spending will take place online in 2016. We forecast Wayfair to generate $3.3 billion of direct revenue from the United States in 2016, implying it has about 14% share of the online U.S. home goods market. Euromonitor projects the U.S. home goods market will grow about 2.5% annually through 2023, reaching $297 billion. If 15% of the spending occurs online, Wayfair will be addressing a $45 billion opportunity in the United States.”

The analysts noted that Wayfair’s inventory-light model allows for a large product selection. “Wayfair offers more than 7 million products on its websites from over 7,000 suppliers. We compared Wayfair’s product selection with several competitors and found that across categories, Wayfair had significantly more product depth. Wayfair is able to provide a large product selection because it does not carry inventory but rather has organized a marketplace where the seller sends most orders directly to consumers.”

In a third report, Domyancic and apparel and accessories analyst Amy Noblin wrote, “We estimate there were about 1.6 million diamond engagement rings sold in the United States in 2015. With an average price of $3,400, the U.S. engagement ring market generates about $5.5 billion annually. We estimate Blue Nile sold about 38,600 rings in 2015, equating to about 2.4% share of the 1.6 million ring market. In our view, there remains ample room for Blue Nile to increase its U.S. engagement revenue.”

The analysts said that pricing and selection are key competitive advantages of Blue Nile. “We believe that Blue Nile differentiates itself from competitors through price and selection. We compared 10 diamonds from Blue Nile with 3 online competitors (Brilliant Earth, James Allen, and Amazon) and 2 offline competitors (Zales and Jared). We found that Blue Nile was less expensive than online competitors the majority of the time, usually by about 10%, and always less expensive than offline competitors, usually by about 40%. Blue Nile’s selection of loose diamonds was also 2 times as large as the closest competitor.”

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William Blair or an affiliate is a market maker in the securities of, Inc., Wayfair Inc., and Blue Nile Inc.

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Outperform (Buy): 64%
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Market Perform (Hold): 3%
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