On the off chance you’re reading this and haven’t heard, today is Prime Day — a proverbial “Cyber Monday” event now put on by Amazon.com, Inc. (NASDAQ:AMZN) every July. The deals are numerous and generous, largely intended to draw attention to Amazon’s Prime service and enroll another swath of members.
And that’s an important detail current and would-be owners of AMZN stock should understand about Prime Day. It’s not really about making money.
Indeed, it’s unlikely that Amazon — already skating by on paper-thin margins — turns a profit on this ballyhooed day. That was never the point, though. Prime Day is first and foremost a publicity stunt, with the secondary goal of annoying its competitors.
Once again it’s achieved both goals.
Prime Day Is a Big Day
Don’t sweat the fact that AMZN stock is down today despite a record amount of business it’s drummed up on the now-annual event. That’s the norm. The company reported early on Tuesday that shopping at its site had reached record levels.
Though the e-commerce giant didn’t divulge any specifics as to what that meant, industry research outfit Internet Retailer forecasted this year’s Prime Day would pump up the company’s top line by 20% on a year-over-year basis.
That would put the day’s sales tally above $2 billion, on a global basis. Amazon’s home-assistant Echo has been the biggest seller thus far, priced at half its usual cost. The Echo was just one of thousands of deals too good to pass up, though … many of them for only a limited time.
One Huge Sales Pitch
As was noted, however, the jaw-dropping deals that induce revenue isn’t the ultimate goal. More than anything, the unspoken aim is to (1) inspire consumers to become paying Prime members, and (2) get the entire financial media industry to say the words “Amazon” and “Prime” for the better part of a three-day span. It’s a kind of advertising the company couldn’t afford to pay for even if it wanted to, given to the company for free.
Of the two, the real upside is the former — bringing new Prime members into the fold.
The numbers change over time, but as of the most recent look, Prime members spend around $1300 per year at Amazon.com, while non-Prime members only spend $700 per year at the site. To that end, Amazon is wise to perhaps even take a loss on the sale of some goods if it adds to its base of Prime users.
In fact, some number crunching suggests that the only reason Amazon is technically turning the thin profits it’s turning is only because of the estimated 85 million members who pay $99 per year for the service, or $9.99 per month.
Of course, if the model works …