Rarely does Amazon (AMZN) shy away from a challenge, so the fact that it’s creating its own shopping holiday called “Prime Day,” doesn’t come as a huge surprise. But it sure is ambitious.
The e-commerce giant declared in a press release this morning that Prime Day would have “more deals than Black Friday.” That’s quite a claim, but if anyone can back up that kind of talk, it’s Amazon, and the news bodes well for AMZN stock owners.
Amazon’s Prime Day is July 15, the company’s 20th birthday. In order to get the killer deals, you’ll have to be an Amazon Prime member, which will set you back $99 annually. (If you’ve never been a Prime member before, you can join free for 30 days.)
In creating Prime Day, AMZN is taking a page from its Chinese counterpart, Alibaba (BABA), whose annual Singles’ Day sales event has been an almost comical success.
If Prime Day Is Anything Like Singles’ Day, AMZN Will Mint Money
On November 11, 2014 — Singles’ Day — BABA did $9.3 billion in gross merchandise value on its sites. By comparison, during the top two shopping days of the year in the U.S. last year — Black Friday and Cyber Monday — online desktop sales came in at a combined $3.5 billion.
And unlike the $9.3 billion in sales Alibaba facilitated, that $3.5 billion represents spending in the entire U.S. — not just on one website.
Listen, Amazon is both powerful and popular, but I don’t know if it can simply announce a shopping holiday one week and expect to break single-day sales records the next week. To be fair, AMZN said that Prime Day would offer “more deals than Black Friday;” it didn’t guarantee record-setting sales.
The real motivation behind Prime Day, of course, is to drive subscriber growth for its $99-per-year Amazon Prime membership. At the beginning of 2015, AMZN reportedly boasted between 40 million to 50 million Prime members, hauling in about $4.5 billion in membership fees alone if we assume 45 million members.
Its member base is growing fast, with 10 million customers signing up for free trials in the fourth quarter and about 70% of those converting into paying members.
In a way, AMZN and Costco (COST) are taking similar approaches to retail; in 2013, Costco generated about $2.3 billion in membership fees, but earned just $2 billion on $105 billion in sales. Then AMZN actually lost $241 million in 2014 despite billions of dollars in membership fees and total revenue of $89 billion.
If Amazon is ever going to become a company that’s consistently profitable, it’ll need to start by growing Amazon Prime subscribers. And Prime Day is well-suited to do just that.
AMZN stock is up 40% already in 2015 after uncharacteristically topping earnings expectations in two consecutive quarters. With the institution of Prime Day on July 15, Amazon is showing that it wants to make profitability a habit.
From an investor’s standpoint, it’s hard not to like that.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
