This Could Send Amazon Stock Skyrocketing
Recently, the news on Amazon.com, Inc. (NASDAQ:AMZN) stock seems to be surrounding the upcoming launch of its standalone music streaming business. But I’m not going to talk about that in this article. Instead, I’m looking at something much bigger, something that could help Amazon become the largest company on Earth.
Sure, Amazon stock is expensive. But if you take a look at what it plans to do next, you’d see that huge opportunities could still be lying ahead for the company.
If you are a small vendor trying to sell your products online, you’re most likely handling all the order processing and shipping yourself. And let’s be honest, that’s not really the most exciting part about the business. Also, if you want to take a vacation, you would either find someone else to do the job for you or you would have to let your customers wait.
Amazon has designed a way to solve your problem through something called “Fulfillment by Amazon,” or “FBA.” It provides storage, packaging, and shipping for vendors selling products on Amazon’s e-commerce platform.
However, as orders start to grow on Amazon.com, third-party shipping companies might not be able to meet the increasing demand on time. Fortunately, Amazon has already thought of this and has started building its own logistics network.
The company has more than 100 fulfillment centers in North America, and is building more. It recently confirmed that it’s leasing 20 Boeing “767” wide-body freighter jets. Amazon is also buying thousands of truck trailers and starting to use contract drivers to deliver more urgent orders. (Source: “Amazon Is Leasing 20 Boeing Planes to Create an Air Cargo Network,” Fortune, March 9, 2016.)
At first, it looks like Amazon is just trying to be less dependent on third-party logistics providers. However, in the near future, it could become a full-fledged logistics provider.
Don’t think it’s possible? Just take a look at “Amazon Web Services” (AWS), one of the fastest-growing segments in the company today. At first, AWS was just supporting its own retail computing infrastructure, but very soon after, it started offering its services to other companies. Even Netflix, Inc. (NASDAQ:NFLX)—the main competitor to Amazon’s on-demand video streaming business—has chosen Amazon Web Services as its cloud provider. (Source: “Completing the Netflix Cloud Migration,” Netflix, Inc., February 11, 2016.)
The idea is that Amazon built something for its own use and since it worked well, it started offering the service to others.
The same could be true for logistics. Earlier this year, Bloomberg dug up an old report from Amazon detailing the company’s ambition in the logistics industry. The report described an aggressive global expansion plan for Fulfillment by Amazon. (Source: “Amazon Building Global Delivery Business to Take on Alibaba,” Bloomberg, February 9, 2016.)
The report said, “Sellers will no longer book with DHL, UPS or FedEx but will book directly with Amazon. The ease and transparency of this disintermediation will be revolutionary and sellers will flock to FBA given the competitive pricing.” (Source: Ibid.)
The goal is to build a delivery network that controls the flow of goods around the globe.
Note that Amazon’s plan does not stop at logistics, though; the company also offers its own digital payments service.
Launched in 2007, “Amazon Payments” charges merchants 2.9% of each sale plus $0.30 for each transaction. Even merchants who are selling on e-commerce platforms other than Amazon have started using the company’s payments service. Because people were already buying stuff on Amazon, it became convenient to use a recognizable payment service for customers who were shopping elsewhere.
Peter Grant, who manages AuthenticWatches.com, said that Amazon Payments is “an order saver.” Roughly a quarter of the orders on his web site—which sells high-end watches that cost thousands of dollars—are paid for through Amazon accounts. (Source: “Amazon Payments Gets Retailers to ‘Open Kimono’ to Competitor,” Bloomberg, April 1, 2016.)
The Bottom Line on AMZN Stock
Note that the logistics service or the payments service could represent multibillion-dollar opportunities on their own. If Amazon manages to build an ecosystem where e-commerce transactions are fulfilled entirely in-house, it could, perhaps, become the first trillion-dollar company.
For Amazon stock investors, the best could be yet to come.