Amazon Stock: Why "Amazon Birthday Gift" Is a Brilliant Move

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On Tuesday,  (NASDAQ: AMZN  )  stock closed within 1% of its 52-week-high as the company announced Amazon Birthday Gift, "a new way for customers to surprise friends on their birthdays by joining together to send Gift Cards with birthday messages" on Facebook (NASDAQ: FB  ) .

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So how does it work?  

In short, anyone with a Facebook account can "start" a gift through Amazon for as little as $1 along with a custom birthday message. Then, other Facebook friends can add their own messages while incrementally increasing the gift card by $1, $5, $10, or $25, allowing the gift to grow until the recipient's birthday.

Then, on the birthday, the "many individual birthday messages will appear on his or her Timeline along with links to claim the gift -- surprising the recipient with much more than just the traditional birthday messages and letting the recipient get exactly what he or she wants from millions of items on Amazon."

What's more, for those early adopters of the novel gift card concept, Amazon's offering a $3 credit if you purchase at least three gifts for your friends over the next month.

Why this is great for Amazon stock
As it stands, assuming the interface is as easy to use as the rest of, there's plenty of reason to believe consumers should have no trouble embracing the new service.

After all, a recent consumer survey from the Retail Gift Card Association showed a full 71.3% of consumers said they were "very satisfied" when they received a retail gift card as a gift, and 91.4% of all consumers reported they plan to give between one and three gift cards as gifts over the next three months. What's more, the survey also showed 73.2% "prefer to give a retail gift card when giving a gift from a group of people," and 84.6% like receiving gift cards simply because it allows them to purchase items they want. 

Amazon's move isn't entirely selfless. Remember, like any other retailer, Amazon gets to collect the cash up front for its gift cards, but doesn't have to deliver anything until the cardholder actually decides to use it.

Of course, this is fantastic for Amazon stock from a cash flow and inventory management perspective, especially considering the same RGCA survey also said one in eight consumers waits at least six months to redeem their card. In turn, this frees up more funds for Amazon to pay for its ever-growing, increasingly efficient infrastructure, which helps provide the lowest possible prices and fastest delivery options for consumers.

Additionally, the same survey also showed nearly nine out of 10 people spend the same amount or more than the amount of the gift card they received, while the rest may never entirely use the balance. Indeed, analysts have long backed up this principle, observing people on average spend between 25% and 50% more at any given retail destination than the face value of their gift card.

Foolish final thoughts
Because this social gift card system should serve to increase those face values that much more, it should boost Amazon's top and bottom lines nicely going forward as more people embrace the everyday utility of social media sites like Facebook. In the end, count this as yet another reason investors can be happy to own Amazon stock over the long haul.

Everyone knows Amazon is the king of the retail world right now, but at its sky-high valuation, most investors are worried it's the company's share price that will get knocked down instead of competitors'. The Motley Fool's premium report will tell you what's driving the company's growth and fill you in on reasons to buy and reasons to sell Amazon stock. The report also has you covered with a full year of free analyst updates to keep you informed as the company's story changes, so click here now to read more.

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  • Report this Comment On June 20, 2013, at 11:13 AM, Lituus wrote:

    Disappointing article. I highly doubt this could be even remotely material to Amazon's stock price.

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