Amazon Is Investing to Extend Its Lead

Amazon Is Investing to Extend Its Lead

Amazon reported strong Q1 results with revenue in-line with consensus of $59.7B and EPS of $7.09, well ahead of consensus at $4.72.

Don’t let the Q1 earnings beat mislead you — Amazon is investing in long-term growth. Exhibit A: Amazon’s newly announced effort to offer Prime members free one-day shipping instead of the traditional free two-day shipping.

One-Day Shipping Should Increase Prime Adoption & Reaccelerate Unit Growth

Amazon is making good on last quarter’s promise to enter an investment cycle for the balance of 2019. We expect the move to trigger analysts to lower earnings projections. One key investment area will be towards a significant increase in the availability of the Prime free one-day shipping option compared to the traditional Prime free two-day shipping option. In the June quarter alone, the company expects to spend $800M on building out the one-day shipping program.

Over the next year, we expect the improved Prime offering will increase Prime adoption and reaccelerate successful items sold growth which has declined from 17% y/y in Mar-18 to 10% y/y in Mar-19.

Amazon is Extending its Lead in Retail

Amazon’s plan to enter an investment cycle should not come as a surprise. Bezos consistently communicates his dedication to investing for the long-term.

In his 2018 letter to shareholders, Jeff Bezos writes: “We believe that a fundamental measure of our success will be the shareholder value we create over the long-term. This value will be a direct result of our ability to extend and solidify our current market leadership position.”

Here’s a list of moves Amazon has made since the beginning of 2019 to advance its dominance in retail. In our view, this list is the near-term output of Amazon’s long-term focused investment strategy:

  • 1/7: Released new home lock products for keyless entry for package delivery
  • 1/23: Announced Amazon Scout robotic delivery project 
  • 2/11: Acquired eero to help customers more easily connect smart home devices
  • 2/28: Announced Amazon Day to pick the day of the week you want to take Amazon deliveries
  • 3/20: Launched Belie – Amazon’s own skincare line with 12 products
  • 3/20: Brought to Amazon Prime Video channels 
  • 4/10: Expanded grocery delivery from Whole Foods to 10 cities in southeastern U.S.
  • 4/23: Announced Key for Garage allowing Prime members to take delivery in their garage when they’re not home
  • 4/24: Expanded partnership with Kohl’s to take Amazon returns at all 1,150 Kohl’s stores
  • 4/25: Announced plans to invest $800M in the June quarter to build out the Prime free one-day shipping program

We expect Amazon’s investment cycle to last through the balance of 2019. As retailers struggle to meet consumer expectations for free two-day shipping, Amazon is increasing the pressure, doubling down on its competitive advantage: unflinching long-term vision.

Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

Amazon, Retail