Amazon (NASDAQ:AMZN) stock rose to a new all-time high after the company reported fantastic national and international order growth in response to its Prime Day promotion.
The second annual Prime Day was a huge hit, generating sales on the level of Black Friday or Cyber Monday. It also generated much less backlash than the previous year's event did; consumers then were upset with the deals being offered.
In this clip from the Motley Fool Money radio show, Chris Hill, Jason Moser, Ron Gross, and Simon Erickson talk about a couple of reasons the company has done so well. They also discuss why the soaring success of Amazon's Prime service might make investors want to reevaluate their holdings in certain membership-based warehouse companies (cough, cough, Costco (NASDAQ:COST), cough).
A full transcript follows the video.
This podcast was recorded on July 15, 2016.
Chris Hill: Shares of Amazon hitting another all-time high this week, and why not? The company says sales from its Prime Day promotion were the biggest ever with orders in the U.S. up more than 50%, international orders up more than 60%. Jason, I'm guessing you were not surprised.
Jason Moser: Well, no, I'm not surprised. I mean, you know that I got something from Prime Day. Your little trolling on Twitter notwithstanding, I'm feeling very good about my purchase. I think everybody in our house actually bought something, which is kind of fun. It's nice to be a part of it. But I think, obviously, Amazon is on to something very big here.
It's no surprise that Prime Day continues to do very well. I think the biggest mistake that probably most investors that like to take the bear side with Amazon make is, when they start focusing on Amazon, and the fact that maybe it's not necessarily always the low-price provider -- that's really just one part of the equation for Amazon.
I think there was a time ago, when the big leap was being made in regards to e-commerce, that people would actually have the patience to wait for something to be shipped. But then again, what if it was the wrong thing? What if they had to return it? There was a customer service aspect that was still very much up for debate there. And Amazon, I think, saw a big opportunity there, and has really, I think, blown all of those notions out of the water in showing that it's not all necessarily just about being the low-cost provider. It's about convenience. It's about a great customer experience. And it's right in line with Amazon's stated mission of becoming the most customer-centric company on the face of the Earth.
Again, we've talked about this before: You look back 10 years, we never would have given Amazon the credit for being a device company, so to speak. That was never really why we invested in the company to begin with. But, you fast-forward to today, beyond just the Kindle, the tablets, with the Echo, with everything they've done here to date in the device and the hardware side of things. The beauty of that is that the hardware just enables the consumer to make Amazon a part of their lives almost on a daily basis, if not on a daily basis.
This is something I suspect we will see more and more of, it's nice to know they can pull this lever on a yearly basis and juice that top line, bring more Prime members in. And that's really what it's all about for them, is continuing to grow that Prime member base.
Ron Gross: From a customer perspective, what I didn't realize is, there's an urgency that they create. Once you put something in your cart, you have 15 minutes, I think, to execute on that, which I didn't realize. And they don't need my advice, but they actually would have gotten quite a bit more money out of me if I didn't have to rush and I could take my time there. I ended up just not executing on a lot of buys there because of that urgency.
Simon Erickson: I have to agree with Jason that the name of the game for Amazon right now is getting the number of Prime members as high as possible as quickly as possible. We've seen some research that they've increased Prime members in the U.S. alone from 44 million last year to 63 million this year, and the average Prime member spends about $1,200 a year on Amazon, compared to the non-Prime member at $500. This is expanding your best customers in the right way.
Hill: It sounds like Jason is an above-average Prime member.
Erickson: I think so.
Moser: More than likely, but that's OK. I think, also, we took a look here recently in Million Dollar Portfolio at Costco (NASDAQ:COST), it's been a holding in the portfolio for a long time. We had to make the tough decision of actually selling our position in Costco. Part of the reason we did that -- No. 1, it was a great performer. But again, looking forward five years down the road, we felt like there were some very optimistic assumptions there in how they were going to be able to grow their revenue in the face of what is plainly becoming a more competitive space for warehouse clubs, thanks to e-commerce and companies like Amazon.
So, while we love that membership side of the business with Costco, we also have to acknowledge that Amazon's got that very same dynamic going, with a membership that arguably provides consumers with far more value than anything else out there.
Hill: I'll just close with this stat, because we did get retail stats for the first half of 2016 this week: Department store sales down nearly 4% in the first six months of this year. Non-store retail sales up more than 10%. So if you're wondering why we talk about Amazon as much as we do, it's because of stats like that.