Despite the huge success of online retail in the U.S., not even 10% of all retail sales in the country are done via the Internet.
Amazon (AMZN) is poised to cause that percentage to increase significantly, driving up the company’s market share, revenue and profits — along with Amazon stock — in the process. Investors should buy AMZN stock to take advantage of the company’s coming revolution.
One of the few remaining advantages that brick and mortar retailers have over their online counterparts is speed. For the most part, any consumer who has to make a last-minute purchase currently does so at a brick and mortar retailer.
Did you travel to a different city and forget a key piece of clothing or a toiletry item? You’ll have to run off to Target (TGT), Macy’s (M) or CVS (CVS). Do you have to buy a last-minute gift for a dinner party? Off to the supermarket you go. Do you need something for a home improvement project that must get done today? You’re probably going to drive to the nearest Lowe’s (LOW) or Home Depot (HD). Do you need a last-minute birthday or anniversary gift for your significant other? A trip to an upscale, brick and mortar retailer like Nordstrom (JWN) is probably in your near-term future.
But AMZN is altering that paradigm.
Amazon’s Quick-Delivery Reach
In “more than 20 U.S. cities,” according to Re/code, consumers can use the company’s Prime Now service to order products within one or two hours. The two-hour service is free for Prime members, while the one-hour service costs $7.99 per delivery.
But only 15,000-40,000 items, depending on the city, are available through Prime Now, versus “millions” for the company’s two-day Prime service, said the head of Prime Now, Stephenie Landry. Blaming the relatively low number of products available via Prime Now on warehouse space issues, Landry said the company was working on a solution to the problem.
Call me overconfident, but somehow I think that Amazon, which mastered two-day delivery and then one-hour delivery and has tens of billions of dollars at its disposal, will manage to solve this space/storage issue, enabling it to dramatically expand the number of products available quickly via Prime Now.
As AMZN expands the product and geographic reach of Prime Now and promotes the service more intensely, the service will almost certainly become much more popular. More and more consumers will realize that, instead of schlepping to their local store to make a last-minute purchase, they can get what they need quickly delivered to them, using Prime Now.
But Amazon is going beyond Prime Now. The e-commerce gorilla is developing a new service, Amazon Prime Air, that will be able to deliver products in a half hour or less, using drones! If this new service comes to fruition, in most cases, last-minute shoppers will be able to get products more quickly via Amazon than by going to brick-and-mortar stores. At that point, Amazon’s share of last-minute shoppers will really skyrocket.
Beyond Amazon’s last-minute shopping programs, there are at least two other, better-known major catalysts that can significantly lift Amazon stock.
Specifically, the company’s international and cloud businesses both have tremendous growth potential.
The growth and profitability of Amazon’s international business has lagged behind its U.S. business, as Re/code points out. The major problem is that the company lacks sufficient infrastructure overseas, but it is “investing heavily in China in particular, and to a lesser extent in India,” according to the publication.
The author of the Re/code article, who is the founder and chief analyst of a technology research and consulting firm, is skeptical about Amazon’s ability to ever succeed overseas, pointing out that the company itself has warned that its “international operations may not be profitable on a sustained basis.” But given Amazon’s tremendous success in the U.S. and its ability to invest large sums of money overseas, it seems unwise to rule out the company’s ability to succeed in China and India.
Moreover, AMZN could partner with and/or acquire Indian and Chinese companies in the future to help improve its performance in those countries.
And then of course there’s the company’s rapidly growing cloud business. The revenue generated by the unit nearly doubled in the third quarter to almost $2.1 billion, while its operating income jumped more than 500% to $521 million. Given expectations for continued strong growth of the cloud for years to come and Amazon’s continued runaway leadership in the space, its cloud business should continue to boost its results — and Amazon stock — for the foreseeable future.
Bottom Line for AMZN Stock
Some may think that Amazon stock, which has jumped more than 118% over the last year, is expensive. But as measured by trailing-twelve-month price-to-sales ratios, AMZN stock is actually cheap compared with a couple of its high-growth peers. The ttm P/S ratio of Amazon stock is 3.13, versus 8.07 for Tesla (TSLA) and 18.85 for Facebook (FB).
Investors should buy Amazon stock to exploit the last-minute shopping revolution it should spark within 12-18 months, as well as its other strong potential catalysts.
As of this writing, Larry Ramer did not hold a position in any of the aforementioned securities.
