Amazon One Step Closer to Apple-Like Ubiquity (AMZN)

Drive-thru for groceries rumor sent AMZN stock surging yet again

By Alyssa Oursler, InvestorPlace Contributor

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Amazon (AMZN) jumped at Monday morning’s start thanks to rumors that the company will soon be testing a drive-up grocery concept.

Amazon Grocery Puts AMZN One Step Closer to Apple-Like UbiquityWhile AMZN stock finished with just marginal gains, at $540, shares have gained over 70% year-to-date, thanks in part to high-volume gap ups after each earnings report.

This news, though, seems especially shrug worthy at first glance, as a drive-thru service doesn’t have quite the same ring to it as other Amazon innovations. (Things that are more newsworthy than a drive-thru that immediately come to mind — drones.)

Nicole Santosuosso, an analyst with Kantar Retail, believes “a physical pick-up presence could help Amazon cut costs while still expanding its presence for consumables,” but slightly improving margins on its grocery business is hardly saying much.

Some analysts actually speculated that AmazonFresh would push the company to the brink of bankruptcy when the service was first announced. While Bezos & Co. play grocery sales and margins close to the chest, consider this: In the most recent quarter, Amazon Web Services posted just 11% of the net sales that Amazon’s North American electronics and general merchandise segment did. Despite that gap in sales, the latter’s operating income wasn’t even double that of the former’s.

If you zoom in on the generally low-margin merchandise section, grocery margins (as a general rule) are bottom of the barrel.

But as many pointed out when AmazonFresh first debuted, Amazon is thinking far beyond its balance sheet. AMZN’s goal, put simply, is to be everywhere for and everything to consumers — from Cyber Monday sprees to Sunday grocery runs; from streaming movies to downloading e-Books. Amazon at a high level is about quantity over quality — scope over margins.

It’s not really a surprise, then, that AMZN stock investors are applauding — they’ve long been applauding the potential disruption and ubiquity of the brand and have been focusing on the top line for the proof in the Amazon pudding.

When drooling over the Amazon stock chart yesterday morning, my editor actually referred to it as “the cult of Amazon, baby” — which I assume he meant to say in a Dickie V. voice. And while that likely sums up the mindset for a core group of investors (surely another group is likely just riding the momentum of the core), it could also sum up their investment thesis.

Amazon is trying to become absurdly ingrained in our daily lives just as Apple (AAPL) did with its tech ecosystem. Of course, Apple’s business plan was the opposite — quality over quantity, margins over scope. When margins later gave way to scope, it was magic … much like the magic that has been the AWS segment.

It’s unclear if the reverse (scope ever giving way to margins) is possible for what makes up the bulk of the company’s sales. Disruption and ubiquity don’t always translate to profits.

And while Amazon is indeed expected to end in the black this year and then almost quadruple its earnings per share next year, it can be tough to decipher just how much of that is already priced into shares of AMZN stock.

Alyssa Oursler is based in San Francisco and writes about technology, investing, gender and entrepreneurship. Her work has appeared on Business Insider, MSN Money and more. You can follow her on Twitter here or check out her personal site here. As of this writing, she did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/amazon-amzn-stock-stock/.

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