Amazon Stock Takes on Shipping
Amazon.com, Inc. (NASDAQ:AMZN) is the 800-pound gorilla of the Internet jungle. No one wants to pick a fight with this giant, which is why shipping companies like United Parcel Service, Inc. (NYSE:UPS) and FedEx Corporation (NYSE:FDX) should be worried. They appear to be the next target for Amazon stock (AMZN).
Until now, Amazon has relied on UPS and FedEx to ship out the goods that it sells online. This arrangement has been great for shareholders, many of whom made small fortunes on AMZN stock. It even worked out really well for FedEx and UPS. They made a lot of money ferrying Amazon products around the country.
But now we’re seeing hints that Amazon wants to cut out the middle man. They want to control everything, from the sale to the last mile of shipping. It’s a bold idea that could send Amazon stock surging to $1,000.00, $1,250.00, or even $1,500.00.
This isn’t a new idea.
It’s not coming out of left field, so don’t listen to the analysts who seem surprised. CEO Jeff Bezos has been toying with this idea for a long time. For instance, he discussed the concept at Recode‘s annual Code Conference a few months ago. (Source: “Will Amazon Kill FedEx?” Bloomberg, August 31, 2016.)
Bezos said that Amazon may need to “supplement” the “capacity that the U.S. Postal Service can give us and that UPS can give us.” Really? How exactly would Amazon “supplement” its existing partners? The only way is to build its own shipping company. They experimented with the idea before, just not in the U.S.
Just look at what Bezos said three years ago:
“We’ve created our own fast, last-mile delivery network in the U.K., where commercial carriers couldn’t support our peak volumes,” said Bezos in his 2013 annual letter to shareholders. “There’s more innovation to come.”
It was a huge success. The delivery network crushed rivals like Royal Mail PLC (LON:RMG) (basically a British version of FedEx) and helped Amazon control its costs. Not only would this sharpen the company’s delivery times, but it could also send Amazon stock soaring sky high.
Think about it: if Amazon builds a delivery system for itself, it can also let other retailers piggyback on the service. They could start shipping products for everyone, including rivals like Wal-Mart Stores, Inc. (NYSE:WMT) or Best Buy Co Inc (NYSE:BBY). It’s a genius way of raking in extra cash.
Could AMZN Stock Rise Another 2,060%?
Everyone knows that Jeff Bezos wants to make Amazon “the Everything Store.” Need to upgrade your wardrobe? Go to Amazon. How about a drum kit? Also Amazon. He wants you to be able to find everything you could ever need on Amazon. That ambition is what makes Amazon stock such a profitable bet.
Other retailers are far more complacent. That’s why AMZN stock outstripped them all over the last decade. Don’t believe me? Take a look at this awesome chart comparing Amazon stock to other retail giants:
Chart courtesy of Stockcharts.com
AMZN stock jumped by 2,060% over the last decade. None of the other retailers even came close to those kinds of returns. It’s clear that constant expansion is what helped achieve those remarkable gains in Amazon stock, but there was also something else: prompt deliveries.
Amazon became famous for its free two-day shipping. Now the company needs to take control of the delivery process to ensure itself another decade of stellar growth.
Citigroup Inc (NYSE:C) estimates that Amazon could save $1.1 billion every year if it cuts out existing shipping companies. That means each delivery would be about $3.00 cheaper. Jeff Bezos can pretend like he’s just trying to “supplement” UPS and FedEx, but the truth is obvious: he wants to crush them. (Source: “Amazon’s Newest Ambition: Competing Directly With UPS and FedEx,” The Wall Street Journal, September 27, 2016.)
That is why Amazon has built 70 shipping centers over the last two years. It’s also why 44% of the U.S. public lives within 20 miles of an Amazon shipping center. Despite what Jeff Bezos says publicly, the truth is that Amazon is building a shipping company that could wipe UPS and FedEx off the face of the map.