Amazon (NASDAQ:AMZN) delivered 40% growth on Cyber Monday last year. In the same press release announcing the news, the company also touched on multiple developments that could prove to be even more significant to the company's long-term success. I'll take a look at one that's interesting but probably won't move the needle and another that could become an important business for Amazon.
On Oct. 8, Amazaon opened its Handmade store that will compete directly with Etsy, the leading site for peer-to-peer sales of handmade and limited-production goods. Investors responded by cutting Etsy's stock price in half. Amazon should be able use its scale and infrastructure to grow this into, at minimum, a business on the scale of Etsy. This won't be enough to materially impact Amazon's top line, but is important for another reason.
Frequent customers of Amazon Homemade may opt to sign up for Prime in order to have their mittens, frames, and custom handbags delivered for free in two days. Prime customers spend an average of 140% more per year than non-Prime buyers so the additional upside for Amazon acquiring subscribers is apparent. Its entrance into this market, in other words, should help fuel Amazon's larger ecosystem.
Comparing Amazon and Etsy at this point is like comparing apples and oranges. Amazon produced revenues over the last 12 months of $100 billion compared for $251 million for Etsy. If Etsy were to grow its market cap 10 times and Amazon didn't grow at all then Etsy would still be 1/34th its size. The best case scenario for Amazon Homemade consists of capturing most of Etsy's market share and growing it into a $5 billion to $15 billion dollar business.
Online-to-offline (O2O) transactions
Amazon is also making a push into the O2O market with Amazon Home Services. This service consists of "handpicked pros offering upfront pricing on pre-packaged and custom services with helpful reviews from customers who have made verified purchases." Amazon acts as a central location where U.S. consumers shop for house cleaning, home improvement, yard work, and many other job postings that have traditionally been fragmented.
Amazon will take a 10-20% cut from the transaction, depending on the type of job. Monthly subscription fees will begin to be charged in 2018, which opens up another revenue opportunity. 10-20% fees on just a small part of what some believe could grow into a trillion dollar market can be needle mover, even for Amazon. Home Services is currently available in 25 U.S. cities but will continue to expand.
Amazon Home Services should further benefit from the proliferation of "the gig economy." It's estimated that by 2020 there will be 7.6 million people working, at least part time, in this new economy. Rather than advertising or building up a customer base from referrals, someone looking to make extra money doing computer repair work can post on Home Services. Amazon Home Services will capture revenue that is currently being spent on local advertising for home services.
Many irons in the fire
Part of what makes Amazon a compelling investment is that it continues to invest in so many opportunities. Some will fail, some will succeed, and some, like Amazon Web Services and Prime, will become its future growth engines. Homemade will help Amazon on its path to be a 'one-stop shop' while Home Services can become a recurring revenue stream adding billions of dollars every year to Amazon's top line.