Amazon.com (NASDAQ:AMZN) is regaining lost ground recently, with the stock climbing more than 13% in the past month. This is a welcome change of pace for Amazon shareholders given the stock's double-digit percentage decline year to date. It's no secret that Amazon burns through cash faster than its retail rivals. However, more interesting is what the e-tailer is doing with that cash. Let's look at three major developments that are fueling Amazon's momentum this month and what they tell us about the e-commerce giant's potential going forward.
1. Amazon pays it forward
The e-tailer announced its new payments service this week for subscription-based or recurring billing. This means Amazon will assume the role of middleman by processing payment transactions for other companies. The e-tailer has reportedly been testing the service with wireless service provider Ting, allowing Ting's customers to pay using their Amazon accounts.
The new offering plays into Amazon's existing online payments platform, aptly named "Login and Pay with Amazon," which the company introduced last year. As you've probably guessed, Amazon's foray into online payments processing puts it in direct competition with eBay's (NASDAQ:EBAY) PayPal business.
PayPal currently dominates the online payments space, processing more than 9 million payments each day across 193 markets. However, eBay's PayPal only has 148 million active accounts today compared to Amazon's headcount of 244 million active users. This should help Amazon convince more businesses to add its payments platform to their checkout options, because it allows them to tap into Amazon's massive active user base.
This is a smart move because it allows the e-commerce giant to leverage its existing customers to create a fresh revenue stream. Amazon, after all, will collect a fee from the provider for each of its transaction it processes. Nevertheless, with online spending in the U.S. estimated to top $300 billion by 2016, there's plenty of room for both PayPal and Amazon in the online payments market.
2. Amazon tackles the wearable tech market
The world's largest e-commerce site recently launched its Wearable Technology store, which Amazon says features the largest selection of wearable devices available today. "Wearable technology is an exciting category with rapid innovation and our customers are increasingly coming to Amazon to shop and learn about these devices," said John Nemeth, director of wireless and mobile electronics at Amazon.
While this won't likely make a difference to Amazon's bottom line, it does position the e-tailer as the go-to source for all things wearable tech. That's not a bad place to be, considering the wearables market in the U.S. is on pace to reach $12.6 billion by 2018, according to research from Statista.
Perhaps most exciting is the "Learning Center" of Amazon's new wearables store. This is where you'll find buying guides organized by product categories such as activity trackers, smartwatches, etc. In addition to product reviews and device comparisons, consumers can also view educational videos to learn more about the wearable devices featured on Amazon's dedicated online store.
Ultimately, if consumers are visiting Amazon's online wearables store to research products, it increases the odds they will purchase the products from the site as well.
3. Amazon unveils a new device
Amazon will hold a product launch event on June 18 in Seattle, and Wall Street is abuzz with rumors that the company will finally unveil a 3D smartphone. While any discussion of Amazon's mystery device is purely speculation at this point, the new device will reportedly use Omron's Okao Vision technology to track head movements. Yet even if Amazon introduces a smartphone with mind-blowing user interface features, it isn't going to be easy unseating Apple or Samsung in the mobile market.
As it stands, Apple currently dominates the mobile market with 41.6% OEM (original equipment manufacturer) market share, according to data from comScore. Nevertheless, we'll have to wait until next week to get the full scoop on Amazon's rumored device and how it plans to set itself apart from others in the crowded smartphone market.
What it all means
Amazon might be burning through cash at an astounding rate, but by doing so, it's investing in its future. Put another way, Amazon is sacrificing short-term profitability for long-term growth. Moreover, Amazon should continue to dominate the online retail space for years to come as it grows its media ecosystem and creates new revenue streams in complementary channels such as online payments.