Carried On A Wave Of Hype, Does Not Threaten Amazon Yet

  • Nicknamed ‘the Amazon Killer’, Jet tries to offer a low-cost alternative.
  • With high subsidies, small inventories, high third-party costs, and no transaction fees, income for Jet’s business model is highly unsustainable.
  • The current state of the private equity markets will make it harder for Jet to raise more required funds.
  • For now, Jet does not threaten Amazon at all.

Tech unicorns have had a rough patch, having their private valuation re-examined and receiving a cold shoulder from Wall Street when going public. Snapchat, Dropbox, Pure Storage (NYSE:PSTG), and SQUARE INC (NYSE:SQ) already felt the sentiment change toward tech unicorns, and as I described in an earlier article, I believe we are just at the beginning of the devaluation process of tech unicorns. In light of the discussions of a valuation bubble in the private equity market, the eCommerce startup attracts a lot of attention, as it aims to challenge the eCommerce giant Amazon (NASDAQ:AMZN).

Jet was founded by Mark Lore, an experienced entrepreneur in the eCommerce industry who sold his previous startup to Amazon for $500 million in December 2010. With his eCommerce experience, Mr. Lore, who also acts as Jet’s CEO, started developing a new type of eCommerce experience that combines the membership model of Costco (NASDAQ:COST) and Walmart (NYSE:WMT) Sam’s Club with the Amazon Prime delivery model and adds a unique algorithm that prices each product in real time based on its availability and location in the distribution centers.

Jet’s unique advantage is its low-cost mindset that guides the company on every step of the way. Only three months after the platform was publicly launched, Jet reduced the annual membership fees from $50 to $35 to become more competitive with Amazon Prime, whose annual fee is $99. The company keeps a low inventory level with only specific and popular items; however, in case an item is not available in its distribution centers, Jet quietly purchases that item on another site through affiliate links to minimize the additional cost. Jet runs an extensive affiliate network under the brand Jet Anywhere that enable customers to receive additional discounts on other sites. The prices that appear on Jet’s website include heavy discounts subsidized by the company.

As shown in the chart below, Jet’s low-cost strategy enables the company to be significantly cheaper than Amazon, even though they keep fewer items than the e-commerce giant. On average, according to a survey done by Boomerang Commerce for the Wall Street Journal, the items offered on Jet are 73% cheaper than on Amazon. However, only 31% of the items available on Amazon are also available on Jet.

Jet_chart 1_113015

It’s obvious that Jet offers better deals on many items compared to its rival Amazon, and Jet is already nicknamed ‘the Amazon killer’ by many e-commerce specialists. Jet claims to generate revenues only from annual fees and not from the items, unlike other eCommerce websites like Amazon, Etsy (NASDAQ:ETSY), and eBay (NASDAQ:EBAY) that charge a small fee for every transaction made on the site. Jet might be the Amazon killer in the short-term and during the current Thanksgiving weekend, raised by the wave of hype and buzz; however, could such a thin/low-cost model survive in the long haul? A test done by the Wall Street Journal showed that Jet lost $242.91 on 12 items purchased by the newspaper, suggesting that the current business model might not be sustainable.

Jet raised $545M at a valuation of $1.5B, which is unbelievable for a company that has only existed one year, with a platform that has been up and running for less than six months. It was the last massive funds injection made by the mutual funds giant Fidelity, who only recently reevaluated its Dropbox and Snapchat holdings. I believe that the massive valuation and amount raised have a lot to do with CEO Lore’s reputation in the e-commerce industry. After he created the super successful and sold it to Amazon, many believe that he will be able to do this again. When every major retailer has a well-designed and well-operated online presence, together with e-commerce giants, like Amazon, eBay, and Alibaba (NYSE:BABA), it’s hard to see how Jet could pose a real threat to Amazon and e-commerce giants beyond the current hype.


As it is hard to imagine Jet gaining more than a modest double digits market share, I can see a scenario in which one of the retailers or e-commerce giants acquire Jet to expand its offering to a specific audience. In my opinion, this is the only valid business justification Jet has and as much as it wants to challenge Amazon, Jet is years away from that point. In the current losing business model, Jet will require increased amounts of funds to go after Amazon and with the current uncertainty in the private equity markets, it is hard to believe that the company will be able to raise much more funds in the short term.

Show Full Article
5 2
Is this article helpful ?    

Author's Disclosures & Disclaimers:
  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
  • The information provided in this article is for informational purposes only and should not be regarded as investment advice or a recommendation regarding any particular security or course of action. This information is the writer's opinion about the companies mentioned in the article. Investors should conduct their due diligence and consult with a registered financial adviser before making any investment decision. Lior Ronen and Finro are not registered financial advisers and shall not have any liability for any damages of any kind whatsoever relating to this material. By accepting this material, you acknowledge, understand and accept the foregoing.
Amigobulls Disclosures & Disclaimers:

This post has been submitted by an independent external contributor. This author may or may not hold any positions in the stocks discussed. Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. Amigobulls has not verified the author’s positions in the stocks discussed, and does not provide any guarantees in this regard. The author may be paid by Amigobulls for this contribution, under the paid contributors program. However, Amigobulls does not guarantee the authenticity or accuracy of the information provided by the author in this post.

The author may not be a qualified investment advisor. The opinions stated in the post should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

show more

Comments on this article and AMZN stock

user profile picture
Mikayla Miletich
Hey Lior,
Jet eliminated the membership fee completely. It was never reduced to $35. When we launched we anticipated a yearly fee of $49.99 but eliminated this before free trials were over. Please see the announcement from our CEO below.

user profile picture
Thanks Mikayla for clarifying that.
Do share this awesome post