Could This Send Amazon Stock Soaring?
Those who invested in Amazon.com, Inc. (NASDAQ:AMZN) stock should have already made their money. Even if you invested as late as 2011, you should still have more than tripled your money. In the past five years alone, Amazon stock has skyrocketed 356%!
You would think that as the company’s shares climbed to nearly $700.00 apiece and its price-to-earnings multiple stood above 300X last year, the gains might have been exhausted. The doubt felt particularly real when Amazon shares dipped sharply in the beginning of 2016. But through another V-shaped recovery, Amazon stock bounced back, gaining another miraculous 46% in a little over three months.
The neat thing is that Amazon has another big plan in the works. If everything goes well, the company should have no problem adding billions—or even tens of billions—of dollars to its market cap.
Let me explain…
Over the years, Amazon has built a service platform that has become indispensable to many consumers. Its ecosystem comprises e-commerce, logistics, and even on-demand video streaming. According to an estimate by Recode, Amazon had at least 46 million “Prime” members worldwide. Note that Prime members are each paying a $99.00 annual fee, which means that the company could be making billions of dollars just from membership fees alone. (Source: “Amazon Has at Least 46 Million Prime Members Worldwide,” Recode, January 29, 2016.)
And those are just Prime members. The total amount of shoppers on Amazon could be much bigger. With control over such a huge e-commerce/retail platform, Amazon could see tremendous success if it decides to launch products of its own.
In fact, it just took the first step into the consumer goods business. On Sunday, The Wall Street Journal reported that Amazon would soon start selling its own brands of goods. (Source: “Amazon to Expand Private-Label Offerings—From Food to Diapers,” The Wall Street Journal, May 15, 2016.)
In particular, Amazon’s brand names would include Happy Belly, Wickedly Prime, and Mama Bear. The products range from perishable foods to household items.
According to the report, these brands would include “nuts, spices, tea, coffee, baby food and vitamins, as well as household items such as diapers and laundry detergents.” (Source: Ibid.)
It took several years for Amazon to develop these private-label lines. Now, the company could finally see some results. Sources said that the company could start selling these products as early as the end of this month or early June. Also, Amazon would only offer the private-label products to Prime members.
No doubt, this is going to be big for Amazon. With tens of millions of Prime members, it makes sense for Amazon to also launch its own brand of products, especially when other retailers such as Wal-Mart Stores, Inc. (NYSE:WMT) and Costco Wholesale Corporation (NASDAQ:COST) have been enjoying the success of their respective private-label businesses.
And Amazon has already experienced huge success when it comes to selling its own products. Its $39.00 “Fire TV Stick” became the first-ever product from any company to surpass 100,000 customer reviews. Moreover, Amazon’s Fire TV Stick has received more five-star reviews (62,500) than any product ever sold on Amazon. (Source: “Amazon.com Announces First Quarter Sales Up 28% to $29.1 Billion,” Amazon.com, Inc., April 28, 2016.)
I believe that Amazon’s private-label business will be a huge catalyst for AMZN stock. The reason is simple—Prime members love the value offered by the membership (such as free shipping, video streaming, etc.). If the company also offers them quality consumer products at a great price, Prime members would not hesitate about jumping onboard.
In fact, if I were an investor in consumer goods companies like Proctor & Gamble Co (NYSE:PG), I might get worried. Right now, people are buying household items such as laundry detergent on Amazon. If Amazon introduces a cheaper yet effective private-label product, will Prime members still choose “Tide”?
The Bottom Line on Amazon Stock
Amazon’s private-label business is bound to be successful. You can wait until the company reports that success in its upcoming quarterly reports, but at that point, Amazon stock probably won’t be trading at today’s prices.