As has become a day-after-Christmas tradition, Amazon (NASDAQ:AMZN) released a roundup of the highlights from its holiday season. While the press release may seem like just a victory lap for the online retail giant, there’s a lot of valuable information for investors if they’re willing to dive past the headline touting record sales.
Here are three important details investors should take away from Amazon’s press release.
1. Amazon is all about “convenience” now
It’s hard to remember a time when shopping online meant sacrificing immediate gratification for the ability to shop from home. Over the last eight months, Amazon has pushed to make more items available for one-day shipping with Prime or same-day delivery with Prime Now. The efforts are paying off. Items delivered in one day or less nearly quadrupled this holiday season.
But more important may be the words Amazon used. “Customers in the U.S. Enjoyed a Season of Convenience,” the press release read. Amazon same-day and one-day delivery items are focused on convenience items, like toiletries or batteries, that typically necessitate a run to the store. Now, Prime members can order them on Amazon because of the fast delivery. In fact, the majority of Prime members said they’d prefer to buy items with one-day delivery on Amazon instead of running to the store.
2. Prime is still growing
Amazon says more people tried Prime this holiday season than in any previous year. That’s impressive considering it said “tens of millions” of people signed up for Prime during the holiday season last year. It also noted 5 million people signed up in one week in December. That’s up from the 4-million-person record it hit in 2017 and the 3 million it posted in the third week of December 2015.
Prime membership growth was showing signs of stagnation earlier this year, as U.S. trial members weren’t converting into paid members. The introduction of one-day shipping in the U.S. may be pushing more consumers to sign up for the service.
Part of the growth in membership may simply be that Amazon Prime is more widely available throughout the world. Amazon only reported numbers on a global basis. But the faster shipping speeds, broader availability of services like Prime Now, and increasing popularity of Prime Video Originals (Amazon said members watched more originals than any year prior) may be pushing membership in its home country. Over half of American shoppers will subscribe to Prime next year, according to an estimate from eMarketer.
3. Amazon is taking on the grocery store
One area of online retail Amazon hasn’t quite dominated is the grocery vertical. Walmart (NYSE:WMT) has become a driving force for online grocery sales, and it plans to leverage that success to take on Amazon’s general merchandise sales. Amazon has taken steps to fight back, including integrating Prime Now grocery delivery with its main website and removing the additional fee for AmazonFresh in the markets it operates.
Amazon said it saw an 80% increase in Prime members trying grocery delivery for the first time. It also saw total orders more than double year over year.
The U.S. online grocery market is expected to grow more than 17% per year for the next few years. And considering online sales as a percentage of total grocery sales in the U.S. are still below other developed markets, there’s a lot of room for growth. Amazon’s ability to fend off the competition in this space is important for investors to watch over the next five to 10 years.
The cost of record-breaking holidays
Amazon’s success doesn’t come without a cost. The company is plowing billions of dollars into its logistics and fulfillment network. It’s spending hundreds of millions on Prime Video originals. It spent $14 billion acquiring Whole Foods in 2017 to provide a backbone for its grocery delivery service, and it’s investing billions more to create a whole new grocery brand. While Amazon is sure to see excellent results on its top line, investors will see a significant negative effect on its bottom line as well.
But Amazon investors shouldn’t expect anything less. After several years of unprecedented earnings, Amazon is in another phase of investment. It might be a long time before those investments start paying off with bottom-line results, and investors shouldn’t expect Amazon to stop there. Amazon wants every December 26 press release to announce a record-breaking holiday season.