What to Expect from Amazon Prime Day 2016
Move over, Black Friday—Amazon’s Prime sale is the new hotspot for bargain-hunters. The July 12 shopping bonanza, which Amazon.com, Inc. (NASDAQ:AMZN) introduced last year, could provide an annual adrenaline shot to AMZN stock.
The idea is pretty simple: put everything on sale for Amazon “Prime” members. It gives existing subscribers a reason to spend more, while drawing in new Prime customers. Either way you look at it, this event is a win for Amazon stock.
Last year, the company pulled in somewhere between $375 and $400 million in revenue on what it calls “Prime Day.” Analysts are expecting that number to double this year as more merchants take part in the event. It definitely makes for some nice padding in the company’s income statement. (Source: “Amazon Prime Day should be much bigger this year than it was last year,” MarketWatch, July 8, 2016.)
That being said, my excitement is centered on the continued growth of Prime memberships. It is the most essential thing in Amazon’s entire business model.
CEO Jeff Bezos has even referred to it as the company’s “flywheel”—a mechanical term to describe a momentum-generating metal wheel. As it spins, it increases the speed and energy of the machine it is powering. That’s what Prime is to Amazon. Bezos is basically saying that Prime is what will drive growth in AMZN stock.
“We want Prime to be such a good value, you’d be irresponsible not to be a member,” he said. (Source: Letter to Shareholders, Securities and Exchange Commission, last accessed July 8, 2016.)
The membership only costs $99.00 for the year, which means it works out to $8.25 a month. It includes free one-day delivery, not to mention video and music streaming.
Amazon has even rolled out a test program for food delivery. Prime members (in select cities) can have certain restaurants and grocery stores deliver straight to their doorstep.
Ultimately, the offer could prove too tempting for customers to ignore.
As for the date of Amazon’s Prime Day, it didn’t choose July 12 by accident. The company wanted a date as far from the holiday season as possible. It’s only logical. Once consumers have paid for Amazon Prime, they’re definitely more likely to use it for their holiday shopping and purchases between now and then as well.
Plus, a critical mass of subscribers would crate a phenomenal revenue base on which Amazon could build new businesses. It could also send AMZN stock surging as investors begin to comprehend the company’s end goal: to be “The Everything Store.”
Bezos has always said he wants to create “The Everything Store,” but no one quite believed him. Now he’s created an all-access pass for that store and a way to lure in customers. Once he has them locked in, there’s no stopping Amazon’s growth.
But don’t just take my word for it. JPMorgan Chase also turned bullish on Amazon Prime Day 2016: “[I]t’s more than a one-day spike,” said the bank’s research team. “Prime Day is an investment in Prime subscriber acquisition, which is a key driver of the Amazon flywheel.” (Source: MarketWatch, op cit.)
Like I said, this one is a no-brainer. AMZN stock is headed sky-high thanks to the Amazon Prime sale.