- Amazon unveiled its drone delivery service plans, dubbed Amazon Prime Air.
- Amazon Prime Air will open up a 30 minute delivery service.
- Amazon Prime Air will complement Amazon Prime Now and leverage Prime memberships to drive sales.
If you're one of the folks that's wondering if Amazon (NASDAQ:AMZN) can repeat its stellar run in 2015, you're not alone. After more than doubling in the year to date, Amazon stock is now priced at close to $660 a share. However, with all the moves that the company is making, the coming year looks more and more promising. In early December, Amazon rolled out Amazon Prime Now, a 1 hour delivery service that could take out the last barrier between Amazon and its brick and mortar competitors like Walmart (NYSE:WMT) and the likes. Days later, Amazon has now unveiled its drone delivery plans dubbed Amazon Prime Air, a drone delivery service that will focus on a 30 minutes turnaround time. There's no clear timeline attached to the launch of the service. However, the fact that the Federal Aviation Authority authorized testing back in March 2015, and Amazon has announced the service a few days ago, it appears that the service could be up and running pretty soon.
Why Amazon Prime Air Matters
For starters, and very obviously, its pretty cool, but there's more to this. Even when Amazon launched its Amazon Prime service back in 2005, what it couldn't do was to compete with brick and mortar competitors like Walmart and the likes, which were possibly within an hour away from customers. With massive additions to the list of products eligible for order under Amazon Prime and the launch of Amazon Prime Now, Amazon has begun to bridge that gap. However, the quicker turnaround times come at a cost. While the 2 hour delivery service comes at no additional cost to Prime members, the 1 hour delivery comes at $7.99 per order. This might seem very steep at first glance, but given Amazon's competitive pricing which has many products being sold at discounts, the service is likely to find its fair share of takers. Just how many remains to be seen though.
Targeting Amazon's Precious Prime Members
Both Amazon Prime Now and Amazon Prime Air will help the company leverage its Prime member base which reportedly stood at 44 million as on June 30 2015, up from 20 million at the beginning of 2014. Also this base is growing fast at 50% growth in the last year in the U.S. and a faster 53% growth worldwide. Why does this matter? Because these members spend three times the amount that non-members spend on Amazon.
Amazon Prime Day, a celebration of twenty years of Amazon, saw the company put together a 24 hour sale with more offers and discounts than were on offer during its Black Friday sale in 2014. The response is a good reflection of the strength of Amazon's Prime subscriber base, and why it matters so much to Amazon. On Prime Day this year, deals and discounts on offer were made available exclusively to Prime members, reportedly driving a large number of Prime subscriptions, which generates a lot of money for Amazon. That's $99 a piece for every new subscription, and it goes straight to Amazon's underfed bottom line. That apart, the event also helped Amazon sell 34.4 million items, a good 18% higher than Amazon's Black Friday tally in 2014. So clearly, this is a lucrative set of customers to have.
Amazon's move to offer lightning quick delivery services is not only likely to leverage this base of subscribers, but also add to it. What part of the overall sales numbers trickle to the bottom line is another issue altogether. However, if it’s revenue that you care about, and if time matters, which obviously does, then things look good for Amazon's e-commerce business. While these moves may or may not drive profitability, they could put a lot of smaller competitors out of business and cause sufficient trouble for the ones that are bigger.
Amazon has already returned over 112% this year, with the stock at $658.6 a share, up from $310 at the start of the year. The company's revenue for 9 months ending September 2015, has grown by nearly 19.5% on a base of nearly $60 billion over the same period in the previous year. That's exceptional growth, but in terms of net income, that line item has gone from a 0.8% loss to a 0.2% profit. All in all, as far as revenue growth is concerned, things only look like they'll improve from here, and If the markets' disregard for profits is anything to go by, there's another great year ahead.