Amazon.com's (NASDAQ:AMZN) innovation engine never ceases to amaze. To that point, the advent of its impressive Amazon Prime Now service is only the latest drop in the bucket in the e-commerce giant's storied, disruptive history.
For those who doubted Amazon's commitment to its fledgling delivery service, a flurry of recent activity signals the company fully intends to bring the offering to the mass market, and soon.
Over the past several weeks, Amazon has nearly doubled the number of cities in which it offers its Prime Now service, which pledges one- to two-hour delivery of "thousands of daily essentials, gifts and more." On March 26, Amazon introduced Prime Now to Dallas. The service launched in Atlanta the following week and then, most recently, in Austin on April 9, bringing the total number of markets in which the Prime Now operates to seven. Amazon has pledged rollouts to additional cities throughout the rest of the year. And while Amazon Prime Now only reaches select ZIP codes in each of the cities where it operates, it represents an important strategic beachhead for the company.
Three ways Prime Now matters
It's easy to dismiss Prime Now as a gimmick, but that's far from the case. For starters, the service, although costing an extra fee for one-hour delivery, should serve as another means of attracting subscribers to Amazon's baseline Prime subscription service. Perhaps I'm lazy, but I'm also confident I'm far from the only Prime subscriber willing to pay an extra few dollars to have any number among 10,000 goods arrive at my door step in an hour or less. Obviously, broadening Prime's appeal is revenue accretive for Amazon, both in terms of generating subscription sales and since Prime members tend of spend substantially more through Amazon after they join.
Second, and perhaps more interestingly, Amazon intends to position Prime Now as a viable alternative to the kind of quick runs to the store so many of us routinely make to replenish whatever daily good we've exhausted. Prime Now has been billed as a "skip the trip" altogether service, which will help Amazon tap into and compete with
a new peer in the retail world. Watch out, convenience shops and corner stores.
Lastly, aggressively expanding Prime Now should enable Amazon to establish a foothold against budding same-day services such as Google Shopping Express or Wal-Mart To Go. Many view these pilot services as intended to pave the way for same-day grocery delivery in the long term, which has long been seen as a major opportunity and challenge for retailers since the original dot-com bubble. Either way, there's clearly inherent value in creating an early presence in a space in what one Forbes journalist described as the Mount Everest of retail: "The lure is obvious, the logistics fearsome, and tackling either without the right plan is suicide." Whether Amazon or others can ever make same-day grocery delivery a reality remains to be seen, but Prime Now is likely another building block in the long-term pursuit of this goal.
The company that creates the future
Prime Now might not seem like big news in light of Amazon's other multibillion-dollar revenue streams, but I see it as a great example of what makes the company a fantastic investment even today.
Amazon has proven time and again that it's a rare breed in the investing world. Plenty of companies pay lip service to being "innovators," but far fewer actually make good on that promise. To put it in perspective, consider how far Amazon has come in the two decades since its founding. Amazon has gone from a crude website selling only books to a company with a presence in online retail, cloud computing, branded consumer electronics, publishing, television production, robotics, travel (recently), and more. I can virtually guarantee that no one this side of visionary CEO Jeff Bezos could have ever dreamed that Amazon would grow so prolific in so many ways when it went public in 1997. That might sound obvious, but it's also important in sizing up the company's long-term trajectory.
As investors, we often seek tangible or, maybe more accurately, quantifiable evidence to drive our conclusions. Investors often cite Amazon's lofty trading multiples and runaway investment as reasons to avoid the stock. However, I maintain Amazon is a rare exception to the rule. Hanging a firm number on something as vague as a company's ability to innovate is often tenuous at best, but this quality made Amazon into one of the most successful technology companies in the world. To borrow the oft-used Wayne Gretzky quote, Amazon certainly knows how to "skate where the puck is going," and the ongoing rollout of its Prime Now service is just the latest example of what makes this company a growth stock to hold for the long term.