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Amazon Expands Prime Now 1-Hour Delivery Service to Denver

Zacks

Amazon.com Inc. AMZN continues to expand its Prime Now Service. Denver is the latest addition to the list of cities receiving the one and two-hour delivery service.

The delivery service, Prime Now, will now offer many household, daily essentials, electronics, games and outdoor supplies among others, to members in Denver. Moreover, Denver Prime members will also have the option of getting grocery products from Sprouts Farmers Market, including seasonal and organic produce, fresh meat and seafood, baked goods and natural vitamins.

Also, customers will be able to use Amazon’s speaker-like home automation device, Alexa, to order from Prime Now.

Undoubtedly, the new destination will help the company attract more customers to the $99/year Amazon Prime program, which is a significant revenue source.


Stock Performance

In the last one year, shares of Amazon have underperformed the Zacks categorized Electronic Commerce industry. While the industry gained 50.3%, the stock returned 34.4%.

Despite the underperformance, we believe there are a lot of factors that could turn the wheels in Amazon’s favor. 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.

Amazon Prime Now

In Dec 2014, Amazon rolled out the one-hour delivery service in a limited area in Manhattan. Prime Now offers two-hour delivery for free and charges $7.99 for one-hour deliveries. All Prime Now items can be browsed and purchased through a dedicated app.

Now, $7.99 might seem a shade steep, if only a few items are ordered. Nevertheless, Amazon offers substantial discounts on these items. So, customers can make up for the delivery charges. Also, there is a convenience cost that comes into play.

Bottom Line

It is important to understand the nature of Amazon’s core business. It is primarily an online retailer and competes with the likes of eBay EBAY and Alibaba BABA. This kind of business has a very low barrier to entry. It is cheaper to set up and attracts a lot of competition. Online retailers also face competition from brick and mortar stores like Wal-Mart WMT.

Therefore, carving a niche in this business demands a lot of marketing, an excellent customer-service model and a rational pricing strategy. Dealing with all three and getting it right to maximize profits requires a lot of effort.

To be a formidable player in this space, Amazon needs to consistently offer excellent services.

Prime Now will be part of an enhanced delivery strategy — an important growth driver for Amazon.

As the perks of Prime members increase, subscription rises, expanding the operating margins of the company in turn.

Zacks Rank

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

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