Amazon (NASDAQ:AMZN) stock took center stage when the company reported third-quarter earnings after the bell on Oct. 24. Analysts projected revenue to come in at $68.7 billion and earnings to come in at $4.46 per share. Unfortunately, the company missed badly on earnings per share, dropping AMZN stock in after-hours trading.
With Amazon continuing to pump money into their fulfillment centers, this and other ongoing issues foreshadowed an EPS miss. This is leading some to suggest that the Amazon stock price, which is down over 20% from its July high of $2,020.99, is not a buy at this point.
However, I’m of the mindset that Amazon stock remains a buy today, tomorrow, and for a long time in the future.
AMZN Is Doubling Down on One-Day Shipping
The company continues to pump money into their fulfillment operations. As I mentioned in an earlier article on Amazon, between 2010 and 2018, Amazon paid $61.7 billion in shipping and fulfillment costs. That equates to approximately 25% of AMZN revenues.
Analysts are anticipating that one-day shipping will continue to be a drag on Amazon’s earnings when they issue their report. However, the expression “in for a penny, in for a pound” certainly applies in this case. Rather than walking away from one-day shipping, Amazon is doubling down.
Among its targets are the bargain store chains that seemed protected from Amazon’s reach. The company is now offering Prime members free shipping on items that are less than $5. Amazon has stayed out of the discount chain arena for economic reasons. The postage to ship many of these items would be more costly than the item by itself.
That no longer seems to be a concern with Amazon’s “add on” program. This program allowed consumers to “add on” select inexpensive items to orders of $25 or more. In 2018, AMZN started listing select groups of items under $5 or $10 that could qualify for free shipping on their own.
Is This a Shot at Target and Walmart as Well?
Certainly companies like Dollar General (NYSE:DG) and Dollar Tree (NASDAQ:DLTR) stand to be affected. But this may also be a shot across the bow at retailers like Target (NYSE:TGT) and Walmart (NYSE:WMT).
These retailers have been credited for making in-roads against Amazon. One of the reasons is because they can attract customers to purchase low-cost items either as necessities or as impulse buys. Either way, these small items were helping boost their sales numbers. That could now be in danger.
More importantly, it also illustrates that Amazon is willing to do whatever it takes to ensure that consumers will never have to leave their house again. We’re even talking about “boring” household items like cotton balls or toothpaste.
Resistance Is Futile
I’m not much of a shopper. I don’t mind going to a store to pick out clothes. And I will usually opt for immediacy over convenience. So, as a customer, Amazon and I have been on two different paths. And it made me skeptical of the meteoric rise of the Amazon stock price. I mean what goes up must come down and all that jazz. At some point, customers would have to say enough is enough.
But that hasn’t happened. In fact, it’s been quite the opposite.
I live in an area that would seemingly be among the last to benefit from next-day shipping. But every day, I see Prime trucks in my subdivision, in my community, literally everywhere I go. They’re not going to my house, but it doesn’t matter. Amazon has cracked the code. And it appears other retailers will have no choice but to follow suit.
Earlier this summer, the startup Verishop made its debut to free one-day shipping for all purchases. The company does not require a membership fee or a minimum purchase amount. It’s a bold strategy that co-founder and CEO Imran Khan thinks is the future of retail. “I completely believe that over the next decade, one-day, free shipping will be standard,” said Khan. “That’s how the world is moving…and I think every retailer has to embrace that.”
Amazon Stock Continues to Build New Moats
I may not be a customer, but I’m a believer. More importantly, as an investor, I’ve stopped trying to second guess Amazon stock. This is a company that isn’t worried about protecting its existing moats; instead, it’s building new ones. There’s something admirable about that. It’s a bold strategy to be sure, and it may result in Amazon looking like a very different company.
But at least one analyst believes the Amazon stock price could reach $3,000 by 2024. And I believe they may just be right.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
