In this article, I will list 1 billion different reasons Amazon.com, Inc. (AMZN) is the best retailer in the world, by leaps and bounds. Stay diligent: If you read eight hours a day, seven days a week, you’ll finish in a mere 10 years. And stay focused, because there will be a quiz at the end:
No. 1 … I’m just kidding. This is one of those articles where all billion reasons are units measuring something AMZN did. In this case, it’s the number of items Fulfillment by Amazon (FBA) delivered across the globe in 2015.
That number is truly remarkable. To understand what that means for AMZN stock, and why it means Amazon is blowing Target (TGT), Walmart (WMT), and other massive retailers out of the water, it may help to know exactly what FBA is.
The Crux of Amazon’s Business
Let’s get something straight: Fulfillment by Amazon is at the core of what differentiates Amazon from the herd. The AMZN stock price could not have soared 120% in 2015 without it.
Still, AWS — which stands for Amazon Web Services, the e-tailer’s market-leading cloud computing division — is the Amazon acronym that gets the most attention. And the glory isn’t without merit: In the third quarter, AWS grew its revenue 78% year-over-year, and accounted for 52.5% of total operating income.
But let’s not forget what Amazon is at its core: a dominant e-commerce company. And FBA facilitates Amazon’s e-commerce like Google‘s (GOOG, GOOGL) algorithm facilitates its search engine.
FBA is a service offered to Amazon merchants, who, by paying a set fee plus a cut of each order, get in exchange a slew of extremely valuable business services from AMZN. Paying for FBA makes things very simple for merchants. All they have to do is ship their inventory to Amazon, which will warehouse it, package it, ship it AND take care of customer service, 24/7.
FBA also makes a merchant’s products eligible for Amazon Prime and free “super saver” shipping. With an estimated 50 million Prime members, this also expands your customer base dramatically, instantaneously.
No wonder it’s popular.
Needless to say, Target and Walmart can’t or won’t offer this kind of thing to third-party vendors — and so they can’t monetize them. That’s fine by Amazon, who was happy to deliver more than 1 billion items through FBA last year, representing more than 50% growth year-over-year. FBA shipments grew 60% during the holiday season.
Christmas Bonus for AMZN Stock
Speaking of holidays, the holiday shopping season appears to have been awfully good to Amazon.com; the company announced today that Cyber Monday orders alone reached 23 million items, up 40% year-over-year. Early estimates for the Black Friday-Cyber Monday online shopping period had AMZN revenue rising between 20% and 25% from 2014.
It’s possible that even those figures were conservative given today’s numbers.
In any case, while FBA may not be the margin machine that AWS and the cloud are, it’s an essential part of the business, it’s growing like crazy and it only expands the wide gulf between AMZN and its next-closest online competitor.
Whoever that is.
As of this writing, John Divine was long AMZN stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
