Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) are both coming into the holidays in need of a big quarter. Amazon stock and AAPL stock both took a beating after their latest earnings reports, and the companies would rather avoid a repeat. To get that big quarter, it appears that the two have decided to cooperate. Amazon will be expanding the number of AAPL products sold on its website, including the latest iPhones, Apple Watch models and the new iPad Pro.
This new partnership between the tech giants looks to be a win-win for both AAPL stock and Amazon stock.
A Complicated Relationship
Apple and Amazon have a complicated relationship. They are competing retailers (at least for consumer electronics) and they compete directly in many areas, including with tablets, video streamers, smart speakers and streaming music. They will soon be competing directly with streaming video services as well.
Historically, this has resulted in some friction, with the two companies refusing to support each other’s products and services. But there has been a de-thawing of the relationship over the past year. In a big step last December, Apple announced Amazon Prime on the Apple TV. Just a few weeks later, Amazon announced it would once again begin selling the Apple TV, after kicking the streamer off its website in 2015.
The two companies can benefit from each other. Amazon is one of the world’s largest retailers and Apple makes some of the most in-demand consumer electronics. After its last quarterly report, Amazon stock took a beating, in part because the company’s forecast for holiday sales was lower than analysts had been expecting. AAPL stock also took a hit after Apple reported Q4 earnings and announced it would no longer disclose the number of iPhones, iPads and Macs it sells. This was interpreted by many to be a response to slowing sales across many of the company’s core hardware product lines.
There is one obvious move that would benefit both Amazon stock and Apple. And it just happened.
Amazon and Apple Bury the Hatchet … Mostly
Amazon will begin carrying a wide range of Apple products, just in time for the holiday shopping season. They’ll be showcased on the official Apple page on Amazon. This includes devices like the latest iPhones, the new iPad Pro and the Apple Watch. They join Mac computers, Apple’s popular Beats headphones and the Apple TV, which Amazon currently sells.
“Amazon is constantly working to enhance the customer experience, and one of the ways we do this is by increasing selection of the products we know customers want. We look forward to expanding our assortment of Apple and Beats products globally.”
In addition, AMZN is cleaning house with its third-party marketplace sellers. Starting in January, only Apple-authorized vendors will be allowed to sell Apple products. That will help to standardize pricing, which should help to encourage shoppers. At the moment this is a big problem. For example, AAPL’s previous generation Apple Watch Series 3 got a price cut to $279 in September, but a quick check of Amazon shows marketplace vendors charging considerably more. One of the first entries is $319.99 for a refurbished 38mm Apple Watch Series 3, and it’s not even refurbished by Apple.
The one item that is being specifically excluded from this new arrangement is Apple’s HomePod smart speaker. With smart speakers expected to be hot sellers as gifts, it looks as though AMZN has no interest in boosting the profile of Apple’s competitor to the Echo.
A Mutually Beneficial Arrangement
Burying the hatchet has the potential for considerable upside for both companies.
As Reuters points out, 71% of AAPL’s sales in 2018 came through indirect distribution channels. The new deal with online retail giant Amazon has the potential to boost sales of its key products, especially through the holiday shopping quarter. At the same time, AMZN weeding out third party marketplace sellers is likely to improve the shopping experience by standardizing prices, while ensuring buyers have a positive view of Apple products.
For Amazon, having the most popular products from the world’s biggest consumer electronics company available just in time for the holiday shopping season is a huge win. If it’s going to beat that lowball holiday sales forecast — and goose Amazon stock — having iPhones, iPads and the Apple Watch available to sell is probably one of the best ways to do so.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
