Is Amazon’s “Buy with Prime” Great or Ridiculous? (NASDAQ:AMZN)

Amazon(NASDAQ: AMZN) has had a rough few years, and investors have seen stocks that have fallen more than 40% from their 52-week highs, as you can see below.

The company has been hit hard by the pandemic by:

• To increase Reduced logistics costs due to port congestion.
• The lack of available workers adds billions in labor costs.
• Rapid inflation and bottomless consumer sentiment.When
• A looming recession.

That left two of the company’s three segments unprofitable, and free cash flow went negative in six of the last seven quarters.

Amazon’s gold standard is Amazon Web Services (AWS), which is also seeing slower growth as companies scale back spending.

The Buy with Prime initiative will be launched at the end of the month. Can this change the flow of shareholders?

What is buy on prime?

If you’re anything like me, you may be hesitant to buy from lesser-known online retailers. warn you.

Multiple surveys show that over half of us expect free shipping when shopping online. This is no coincidence. Amazon Prime has changed people’s expectations over the years. Retailers who don’t provide it are often overlooked or lose customers at checkout.

Of course, shipping is not always free. freedomYou’ll need to sign up for a $139 yearly Prime membership. It may not be worth it for those who shop online casually, but it pays for itself quickly for those who shop online all the time. .

Logistics as a service

Buy With Prime will allow online retailers to offer fulfillment services through Amazon even if they are not selling on Amazon.com starting January 31st.

retailers on site[プライムで購入]Place the button, store the item in Amazon’s warehouse, and customers can take advantage of free 2-day shipping, free returns, and other Prime benefits. Customers can also use their stored Amazon Prime payment methods.

The service is compatible with most e-commerce providers such as BigCommerce (BIGC), Magento and even Shopify (SHOP).

Purchases on Prime began in April 2022, but were only available to select “Fulfilled by Amazon” retailers. Anyone can apply from January 31st.

Merchants who used Buy with Prime during the pilot stage reported more traffic and higher conversion rates.

Leveraging its massive scale and membership base, Amazon is building a strong Logistics-as-a-Service (LaaS) organization with this expansion.

third party logistics

Many businesses already receive third-party logistics (3PL) services and use them for warehousing, inventory management, and shipping. Smaller retailers know that handling these services in-house is cumbersome and expensive due to their limited scale.

Buy with Prime is essentially a 3PL extension.

What does it mean for Amazon and its shareholders?

At each stage, Amazon makes a profit on storage, service, fulfillment, and payment processing fees. For some retailers, this may not be cost effective. However, many have already paid for 3PL, and Amazon’s size should remain cost competitive.

Evolving into a service-oriented company

Selling discount products is not a profitable business. Amazon has never been hugely profitable from retail alone. Even the world’s most efficient scalers like Walmart (WMT) have profit margins of just under 5%. Buy with Prime eases the burden and allows Amazon to pocket cash from his 3PL service.

of my last articleI called something noteworthy: Amazon is now More revenue from services than productsas shown below.

This is no small feat given the rapid rise in retail spurred by the pandemic.

Service sales are More Profitable, Consistent and Predictable.

Amazon currently has some impressive service revenue streams, including:

• AWS ($76.5 billion);
• Third-party seller services ($112 billion).
• advertising ($36 billion); and
• Subscription services like Prime ($34 billion, 200+ million members).

The above sales figures are for the last 12 months (TTM).

The company is betting big for its LaaS business to join this list.

It will also spur growth in Prime memberships, just as NFL Thursday Night Football made its way into broadcasting.

After massive CAPEX spending, the pressure is on.

A tough economy is just part of the reason Amazon’s free cash flow plummeted. Capital expenditures (CAPEX) are investments in assets, equipment, and technology that do not appear on the income statement. These charges increase Amazon’s logistics capacity, capabilities, and AWS infrastructure. The chart below shows the huge CAPEX spending.

The impact on free cash flow is clear.

This spending puts Amazon’s shipping services on par with UPS (UPS) and FedEx (FDX), allowing for the expansion of 3PL services.

For this investment to pay off, Amazon needs to perform well.

Andy Jassy needs a big win.

This expenditure was detrimental to shareholders. While companies like Google’s parent company Alphabet (GOOG) (GOOGL) have taken advantage of market declines to buy back large amounts of stock (Google has spent his $90 billion in the last seven quarters). , Amazon has short-term debt.

Investors are getting restless and CEO Andy Jassy is feeling the heat. But investors should not rush to attack him. Jeff Bezos retired in 2021 when his company was on top of the world, but he knew headwinds were coming. Jassy has taken over in an enviable position.

3PL’s addressable market is huge. The key is execution. Jassy is an architect at AWS, Amazon’s best business. It took years to build, but today we are the world’s leading cloud service provider.

Are you buying Amazon stock?

There is little consensus in today’s market. A recession is coming, stocks are going down and fear is rampant. But consider focusing on bottom-up investing — buying and holding shares in great companies rather than trying to time the market.

“We look at companies from a bottom-up perspective for long-term return prospects, rather than forecasting macroeconomic factors.” — Melody Hobson, a business woman who rose from poverty to run a multi-billion dollar investment firm.

of This recent articleI share examples of highly successful and well-known companies that have experienced substantial declines over the years and have produced long-term returns in favor of their shareholders. It can be invaluable when your vision gets cloudy.

Amazon’s stock is trading at a price not seen since 2019, when the company’s revenue dropped 40%, the lack of a large advertising business, and AWS came into its own.

Despite the macro environment, the company is now building a stronger foundation. Stocks will probably be volatile this year, along with the market, but nothing beats market buying when everything is rosy. It is an opportunity to collect shares that will become