Since its launch in 1994, Amazon.com (NASDAQ:AMZN) has taken on rivals in almost every industry imaginable. The company has helped to create a world in which you can buy everything online that you could get in a retail store. The company appears to be taking that a step further with its launch of fresh-cut flowers delivered directly to your door. The move is the latest in a long line of Amazon's battles against retail and online competitors.
Amazon has six flower offerings available on its website. They range in price from $28.92 to $41.02. and feature 12-to-25 flowers per arrangement. The flower bouquets ship for free to the contiguous 48 states. An Amazon executive had this to say of the new venture: "At Amazon, we continually look for ways to delight our customers and we are pleased to provide them this opportunity to conveniently purchase fresh-cut flowers."
The entry into flowers by Amazon won't have a material impact on the company's financial outlook, though I believe it further strengthens the company's push into produce and fresh items. Amazon has made it a goal to offer fresh products and continues to step-up its competition when it comes to delivering items to consumers. The company's entry into flowers should have shareholders of two publicly traded companies worried.
Hang up on 1-800-Flowers?
Appropriately-named 1-800-Flowers.com (NASDAQ:FLWS) is the world's leading florist and gift shop. The company offers flowers for sale online, as well as in more than 125 retail locations. Along with flowers, 1-800 Flowers owns assets like Popcorn Factory and Fruitbouquets.com.
Several positives exist for the company. 1-800-Flowers is a debt-free company and continues to divest non-performing assets like winetasting.com, which it shed in the fourth quarter. The company is also expected to produce revenue growth of 5% in fiscal 2014 and 2015.
Consumer floral sales were up 3.7% in fiscal 2013. Gourmet food and gift basket revenue saw 7% growth in fiscal 2013. Despite its name, 1-800-Flowers is balanced enough that it could take a hit from Amazon. In fiscal 2013, only 56% of total revenue came from consumer flowers. The company will also share the hit with franchise owners.
However, shares of the company trade at a high price-to-earnings multiple in the 20's based on current expected earnings of $0.28 per share.
Spin-off won't help United Online
United Online (UNKNOWN:UNTD.DL) is a small $700 million company that owns the FTD brand. The company's other assets include Classmates, My Points, Net Zero, and Juno.
In the most recent second quarter, FTD made up a significant 74% of United Online's total revenue. Despite this high percentage, United Online is actually spinning-off the flower company into a separate publicly traded venture.
In fiscal 2012, United Online posted earnings per share of $0.67. Analysts see that number dropping to $0.56 in the current fiscal year. Revenue is also expected to drop 2% to $856 million. In the second quarter, total revenue fell 2%, including a 2% drop in the FTD business segment. The company's other business segments saw even larger declines in the second quarter.
United Online looks to be in an alarming situation, and the Amazon entry into flowers certainly won't help. The company pays out 75% of profits in the form of dividends, is seeing shrinking revenue, and is spinning-off its only strong asset.
The big advantage of FTD and 1-800-Flowers is their earlier entry into the flower market. However, with Amazon's size and large customer databases, the company can likely put a dent in both companies' profits and gain significant market share.
Another plus for existing flower companies is their ability to ship flowers out on a certain day, a benefit that Amazon doesn't offer. However, in true Amazon fashion, the company is "working to bring you this feature as soon as possible."
I have written several articles about Amazon taking on companies like Sotheby's, Dick's Sporting Goods, Bed Bath & Beyond, and Carter's. In many of the markets, there is plenty of room for competition. Amazon takes a small market share and strengthens its position as the leading Internet retailer.
However, when it comes to flowers and taking on small-cap companies like FTD and 1-800-Flowers, Amazon could do some damage to existing shareholders. I remain bullish on Amazon despite its high price-to-earnings multiple. United Online and the resulting FTD spin-off are not worth investing in, despite the high dividend yield. I would also stay away from 1-800-Flowers.
Chris Katje has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com and United Online. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.