Jeff Bezos’ Next Big Project at Amazon.com, Inc.
Amazon.com, Inc. (NASDAQ:AMZN) may be redefining its fundamentals with new ventures in the world of technology, but CEO Jeff Bezos is not giving up its core. In fact, the company is now undertaking historical steps to widen its original moat in e-commerce, all of which spells good news for AMZN stock.
Amazon’s moat has been its first-mover advantage in the online retail space, where it has long enjoyed a leadership position. In fact, Amazon is the biggest e-commerce company in the world today in terms of revenues. Yet, online retail continues to make up much less than 10% of the total retail sales in the U.S. Amazon is now aiming to broaden its moat and take on the offline retail industry.
Time efficiency has been the biggest challenge for online retailers, or e-tailers. Look at it this way: as a buyer, you may not mind waiting two to three days when it comes to purchasing a book or a data traveler online. But if you run out of toilet paper or soap, you have no choice but to run down to the nearest Walmart. The trade-off continues to increase as the time-specificity of a product increases. The result: you are willing to give up on a more convenient e-commerce experience in favor of a less-convenient trip to your nearest superstore.
Nonetheless, Bezos has found a way around it. To achieve a deeper market penetration and to make Amazon a viable substitute to offline retail, Bezos is launching the fastest delivery service any online retailer could ever offer.
Amazon’s Next Big Project
Amazon is now going all-in on delivery. Unbelievable as it may sound, the e-commerce giant is planning to lease or buy 20 Boeing “767” jets to step up its game in fast delivery. (Source: “Amazon building its own overnight airfreight operation, sources say,” Cargo Facts, December 17, 2015.)
This marks the biggest move in logistics by any e-tailer. Earlier this month, the company also added a fleet of trucks to its own brand of Amazon delivery. Currently, the company offers the fastest online delivery service through “Amazon Prime Now,” under which it delivers a catalogue of goods within one hour for a small extra charge. Likewise, the “Amazon Fresh” service offers fast same-day delivery for grocery items. (Source: “Amazon Buys Thousands of Its Own Truck Trailers as Its Transportation Ambitions Grow,” Re/Code, December 4, 2015.)
Evidently, Amazon is working on a full-blown logistics model whereby the company will not only fly out packages on its own schedule, but also be able to have its own transport schedule from the landing strip to your garage. In other words, Amazon will be able to speed things up to cater to high demand and time specificity, matching or even surpassing the brick-and-mortar retail experience.
To further bolster its position in delivery and logistics, the company has another big project in the pipeline—Amazon’s drone delivery project, “Prime Air.” I wouldn’t be surprised if the logistics side of business ends up becoming a separate stand-alone segment for the company.
This certainly spells trouble for the delivery companies like the United States Postal Service (USPS), FedEx, and UPS, which have, up until now, been providing delivery services to Amazon.
The Bottom Line on AMZN Stock
Jeff Bezos has built Amazon from a small online bookseller to a full-blown technology conglomerate, with investments in technology hardware, enterprise web services, cloud computing, and now logistics.
AMZN stock has been a promising growth play for more than a decade now. The stock has returned a healthy 260% return over the last five years and more than 115% year-to-date, despite the company being unprofitable during most of these years. Even with thin gross margins, Amazon has witnessed exponential growth as a tech company.
The new projects underway at Amazon spell more good news, as the company will witness a boost in its e-commerce revenues that will allow its bottom line to move further into the green territory.
I’m bullish on AMZN stock through 2016.