Image source: Amazon.
Amazon (AMZN -1.65%) is one of the most popular stocks in the Foolish universe. And for good reason. Its investments in itself and the future have produced stellar investment returns for shareholders over the past two decades. Its recent announcement to add over 4,000 items to its Prime Now One-Hour Delivery program is a microcosm of this broader strategy.
One-hour delivery is worth the investment
Amazon doesn't pay dividends because it believes that it's better to reinvest into customer-pleasing initiatives. But even though the company has shortened the free delivery time to two days for Prime members, the online retailer is still missing out on sales of products that customers need right now.
If you're sitting with your family and want to play a board game that afternoon, Amazon used to not be a viable option. If your television blows out the morning of the Superbowl, a trip to the strip mall was necessary. But with the expansion of one-hour delivery, currently available in select cities but likely to become the norm, inconveniences like this will be a thing of the past.
How will this work? More investment
One-hour delivery, especially when it rolls out nationwide and includes more products, may put a strain on delivery companies and couriers trying to keep up with the increase in shipments. If a package doesn't get where it has to be, is late, or is damaged, it hurts the customer's perception of Amazon.
The digital retail juggernaut has chosen to address this problem by taking part in the delivery process. It's seeking permission to use drones for delivery, and it recently bought thousands of semi-truck trailers to expedite delivery around the country. This should help alleviate any strain in its supply chain.
There have also been rumblings that Amazon is getting ready to launch an air cargo business of its own. This would increase the company's control over its own destiny as well as add a potential new revenue stream.
Why invest so much? More revenue
Prime members spend more than twice as much on Amazon as non-members do every year and so retention of these members is important. Amazon Prime includes many features in the $99 yearly subscription fee. By adding new ones such as one-hour delivery it strengthens the connection between customers and the company. Once a customer gets used not going to the store, even for last-minute items, it makes it seem less likely that they would cancel their membership.
Image source: Amazon.
Why do I invest in Amazon?
I hope that Amazon can continue to reinvest in ways that grow its intrinsic value. If ideas for superior reinvestment opportunities run dry, I have faith that Bezos and company will begin to convert revenue into earnings and reward shareholders with dividends and share repurchases. At that time my claim on future earnings will be larger and the share price should have followed suit.
I can count on one hand the number of companies that I feel as confident about as Amazon in over the long term. Stick this stock in your brokerage account and check back in 10, 20, or 30 years. I think you'll be happy with what you see.
