Amazon.com, Inc. (AMZN) unveiled its newest prototype for branded Amazon drones just ahead of Cyber Monday, and as stupid as the plan to make deliveries by air this way may sound, anything that supports the retailer’s subscription-based Prime program is potentially good for AMZN stock.
AMZN and other massive companies like Alphabet’s (GOOG, GOOGL) Google and Walmart (WMT) are experimenting with the technology of delivering packages by drone, but that doesn’t automatically make it a good idea.
First off, there are regulatory hurdles. New ones are popping up seemingly every other day and there’s no guarantee that the Federal Aviation Administration won’t put the kibosh on the whole concept.
Then there are the technical obstacles. Amazon drones and other aerial delivery vehicles have to contend with everything from weight, range and battery-life limitations to weather conditions. It seems unlikely that Amazon drones will be delivering, say, 12,000-BTU air conditioners through flocks of geese during thunderstorms anytime soon.
It’s also far from clear that consumers want such a service. Indeed, it’s entirely possible AMZN is answering a question that no one asked.
AMZN, meanwhile, doesn’t care. It sure looks serious about making some iteration of its drone delivery program a reality. Just have a look at this new video of the latest prototype in action:
[youtube http://www.youtube.com/watch?v=MXo_d6tNWuY]
Amazon Stock Partly Tied to Growth in Prime
Cool stuff, no doubt, but what does it mean for investors in AMZN stock?
Shareholders can’t expect any immediate or material upside in operating results or Amazon’s stock price because of any incremental progress made by the drones program, but that doesn’t mean the company is wasting money on the investment.
If nothing else, the Amazon’s drones program — and related marketing push like the video published Sunday night — brings attention to Amazon Prime. This subscription service — along with cloud services — has sort of become the company’s secret sauce, and anything related to it bears watching.
Amazon Prime members get all sorts of goodies in exchange for $99 a year, and in return they become the company’s most valuable customers.
In addition to the billions AMZN makes in membership fees, the e-commerce giant benefits from the fact that Prime customers annually spend five times as much as non-members on the site. Other research shows that the longer they’re Prime members, the more they spend.
And yet as popular as Prime may be, there’s still tremendous room for growth. Analysts guess that the majority of AMZN customers haven’t signed up for Prime yet.
One Wall Street analyst figures that every million new Amazon Prime members could add a 1.5% gain to total revenue.
This is where the Amazon drones fit in. The skies don’t have to be dark with squadrons of these things to make them worth the investment. If the perk of quick air delivery for select items can help swell the ranks of Amazon Prime members, that’s all to the good.
Amazon drones might look like a sideshow right now, but don’t bet against them becoming another part of the ever-expanding Prime package of benefits. If that entices more customers to sign up for the premium service, that’s all to the good for Amazon stock.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
