This Could Be the Next Big Thing for Amazon.com
Amazon.com, Inc. (NASDAQ:AMZN) is making a big investment you wouldn’t expect from a technology company and owners of AMZN stock should take note.
Amazon is considering leasing 20 “Boeing 767” wide-body freighter jets to help the company gain more control over its logistics platform. The company is also buying thousands of truck trailers to speed up shipping from its fulfillment centers to sorting centers. (Source: “Amazon Said to Mull Leasing Planes to Control Delivery Chain,” Bloomberg, December 18, 2015.)
Having its own fleet of freighter jets and trucks would certainly give Amazon more control over its shipping. This would be particularly useful when it comes to holiday seasons, when Amazon’s third-party logistics providers struggle to keep up with the large and erratic orders. During the peak holiday period, it is estimated that Amazon would ship around 5.2 million packages a day.
Right now, about 70% of Amazon’s shipments go through the U.S. Postal Service, while United Parcel Service Inc. (NYSE:UPS), FedEx Corporation (NYSE:FDX), and various smaller delivery companies take the remaining 30%. Two years ago, UPS had a delay for Christmas orders on Amazon.com. The companies decided to refund shipping costs and give a $20.00 Amazon gift card to customers who failed to get their deliveries by Christmas Day. By having its own logistics platform, Amazon could plan ahead and prevent these kinds of third-party delays.
AMZN Stock: Surging Amazon Prime Membership
What the potential move suggests is that Amazon, especially its “Amazon Prime” service, is growing with increasing demand. You see, for $99.00 a year, Amazon Prime membership gives you free unlimited two-day shipping on millions of goods in the U.S., and free same-day delivery to certain metro areas on a selection of items. Moreover, Prime members also get to enjoy video and music streaming services, digital book rentals, and unlimited cloud photo storage. On a monthly basis, all this great stuff could be had for just $8.25!
As expected, Amazon Prime became a huge hit. In 2014, Prime membership grew 53%. The company doesn’t break out Prime membership numbers, but it is believed that around 20% to 25% of U.S. households use Prime. Some analysts believe that 50% of U.S. households would be Prime members by 2020. Prime members also tend to spend more on Amazon’s e-commerce platform compared to non-Prime members. (Source: “Half of US Households Will Use Amazon Prime by 2020, Predicts Analyst,” Business Insider, February 26, 2015.)
The company is also offering new perks to boost its Prime membership. On November 24, JetBlue Airways Corporation (NASDAQ:JBLU) announced that Amazon Prime members can enjoy unlimited streaming of Amazon Video on over 150 “Fly-Fi”-equipped JetBlue aircrafts. Passengers can also use in flight Wi-Fi to download songs, apps, and e-books through Amazon’s online stores. (Source: “Unlimited Entertainment From Amazon on JetBlue Now Available as Holiday Travel Season Takes Off,” JetBlue Airways Corporation, November 24, 2015.)
The Bottom Line on AMZN Stock
Of course, building logistics infrastructure is going to be costly, and that might affect AMZN stock’s bottom line in the short run. However, in the long run, relying less on third parties for logistics could improve Amazon’s delivery efficiency tremendously and also save on costs. When that happens, investors of Amazon stock could see fruitful returns.
At the end of the day, keep in mind that Amazon founder and CEO Jeff Bezos is capable of turning big ideas into reality. His aerospace company, Blue Origin, managed to successfully land a rocket last month. Do you think he’ll have a problem building a fleet of planes and trucks?