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Amazon to Make Capital Investment of $200M in Utah Facility

Zacks

Amazon.com, Inc.’s AMZN Utah facility is going to be one of its most expensive fulfillment centers with the company reportedly planning to spend round $200 million on it. The facility will be highly robotized just like the one in New Jersey built in 2013.

Utah Governor Gary Herbert stated that the company received $5.6 million in tax credit to build the $800,000 square feet facility. It’s expected to create around 130 jobs in the next eight years and pay 110% of the average wage in the county.

More Robots for the Fulfillment Process

Amazon has been increasingly pouring cash to build and modernize fulfillment centers mainly to cut shipping costs and speed up delivery. The deployment of robots decreases the time taken to sort and pack products, thereby strengthening its same-day or overnight delivery services.


In 2016, Amazon’s capital expenditure increased 51% on a year-over-year basis and a major part of that went into the construction of 26 fulfillment centers and deployment of robotics technology inside them.

We note that year to date, Amazon has underperformed the Zacks Internet-Commerce industry. The stock returned 30.5% compared with the industry’s gain of 39.5%.

Despite this underperformance, we believe there are a lot of factors that could turn the wheels in favor of Amazon. These include expansion of Prime, Fulfillment By Amazon, its grocery initiatives and efforts around Amazon Web Services (AWS). The company capitalizes on its execution strength, robust performance and technological prowess.

Increased Capital Expenditure Makes Sense

Fulfillment centers help Amazon store and ship products and handle returns quickly. These are important for providing the level of service that customers have come to expect from the company.

In addition, small retailers that are unable to provide relatively cost-efficient shipping are also signing up for Amazon’s fulfillment services. Third parties also avail the company’s warehouses and shipping services. These in turn help the company boost revenues and drive expansion.

Heavy investments in these arrangements (and several other initiatives) keep Amazon’s margins under pressure. But at the same time, these are responsible for keeping the company’s retail business unbeatable on price, choice and convenience in the face of fierce completion from Wal-Mart WMT, Alibaba BABA and eBay EBAY.

Amazon.com, Inc. Net Income (TTM)

We believe that Amazon’s long history of execution, growing focus on innovation, technological prowess and huge cash balance not only give it the flexibility to pursue growth in potential areas but also create value for investors.

Through these significant investments, Amazon intends to gain long-term competitive advantage.

Currently, Amazon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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