Amazon.com, Inc. (AMZN) stock is having an absolutely stellar year. Its shares are the second-best performers in the entire S&P 500 in 2015, trailing only Netflix, Inc. (NFLX). Shareholders have been amply rewarded this year with returns of 114% to date.
Obviously, much of that outperformance is simply a result of its increasing ubiquity in e-commerce. AMZN revenue jumped an estimated 24.1% year-over-year during the Black Friday to Cyber Monday holiday shopping period, according to Channel Advisor. That’s a full 3.2 percentage points better than the online shopping industry as a whole.
Amazon continues to expand its lead over rivals Target (TGT) and Walmart (WMT) on the web.
Amazon Web Services, the company’s high-margin cloud computing division, is also performing far better than Wall Street expected and helping to elevate AMZN stock.
But yesterday the company rolled out a service in Manhattan that could ultimately play a huge role in Amazon stock’s final step to becoming the retail powerhouse in the U.S.: Alcohol delivery.
It sounds ridiculous, but it’s not. Here’s how booze delivery fits into Amazon’s master plan:
Building Out Prime Now
On Wednesday, Manhattan became the second location (Seattle was first) in which Amazon Prime Now users can order beer, wine and spirits for delivery. Want your PBR on the double? One-hour delivery is $7.99, while two-hour delivery is free for Prime members.
It plans on expanding to more U.S. cities in the future, but alcohol delivery is a sticky area from a regulatory point of view, so it takes time.
No, the $7.99 delivery fee isn’t going to propel AMZN stock to $800, but it does give yet another reason why consumers should become Amazon Prime members. That’s Part one of Amazon’s end-goal here: to boost the number of Amazon Prime subscribers, which currently sits around 41 million. At $99 annually, that’s a guaranteed $4.1 billion in revenue from memberships alone.
Beyond that, Prime members end up buying far more on Amazon.com than non-Prime members, so the benefits are multiplied.
Part two of Amazon’s end-goal? To fundamentally disrupt traditional brick-and-mortar retail altogether. AMZN has always championed and understood the importance of customer service, and it’s willing to spend heavily on that. Fast, efficient delivery services through Prime Now are at the heart of these ambitious efforts.
And it has got a ways to go. 2015 revenue is expected to clock in at around $107 billion for Amazon. Wall Street’s expecting about $483 billion from Walmart.
AMZN stock can’t make up that deficit by simply improving its website; its website is already very, very good. Instead, Amazon has to grow by optimizing its on-demand delivery business, bringing products to your front door within minutes. That’s why we see Amazon snapping up thousands of tractor-trailer trucks and working on drone delivery.
And, with its latest move, that’s why we see it delivering six-packs.
So don’t be quick to scoff at this whole alcohol delivery thing. When I say it could be the beginning of the end for traditional retailers like Walmart and Target, it’s not because I’ve been drinking.
As of this writing, John Divine was long AMZN. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
