E-commerce giant Amazon (Nasdaq: AMZN) reported earnings last week.
And I love going over all the details in reports from big companies like this … because earnings season is one of the most exciting times for the markets.
And one thing in Amazon’s earnings report stood out to me.
But it wasn’t that its sales surged more than 40%…
Or that it made over $4 billion more in revenues than expected…
Or even that it crushed analysts’ earnings expectations by 65%.
It wasn’t any of that.
Instead, the most important thing I saw was that Amazon’s capital expenditures surged 80% over the last 12 months.
This means the company was pouring its profits back into its delivery business. It added more warehouses, airplanes and trucks to its fleet. All told, Amazon boosted the capacity of its logistics operations by 50%.
Despite the pandemic — an uncertain time for any company — it wasn’t conservative.
And here’s why that caught my attention…
Becoming the Biggest Delivery Company in the U.S.
This is a clear sign that Amazon is going after two of the biggest delivery giants: UPS and FedEx.
At its core, Amazon is just an online retail company. But it’s always been expanding its shipping abilities — especially with its Amazon Prime service, which really helped the company take off.
Today, the subscription includes perks like Prime Video, Prime Music, Amazon Photos and much more. But when Prime first launched about a decade ago, the $79 membership only included guaranteed free, two-day delivery.
Yet that one staple alone was enough to draw in hundreds of thousands of new customers. And it still does today.
Fast and efficient shipping and delivery services are a top priority for customers shopping online. And Amazon knew it could save costs and significantly reduce shipping times if it delivered its own packages rather than give them to outside companies like UPS and FedEx.
So, it’s spent a fortune in recent years to establish its distribution network. It now ships nearly two-thirds of the products sold on its website.
And as recently as 2019, Amazon directly delivered more than 2.5 billion packages annually. That’s almost on par with FedEx’s 3 billion packages and more than half of UPS’s 4.7 billion packages in the same year.
That’s why the surge in its spending to build out its delivery fleet caught my attention. It shows the company means business. It could even overtake FedEx and UPS as the largest delivery company in America.
Of course, FedEx and UPS are still benefiting from the rest of the e-commerce industry. But with Amazon continuing to expand, some people are wondering: Are FedEx and UPS going the way of Blockbuster?
Delivery Companies Have Plenty of Runway Ahead
Despite missing out on Amazon’s delivery business, I don’t think they’ll become obsolete.
They’re still seeing stable growth. And I believe they’re still set to make a fortune.
The past decade has been an explosive time for online shopping. The delivery industry isn’t going anywhere.
In fact, I think Amazon’s spending in the space is just added confirmation that delivery companies will play a huge role in the retail market for years to come.
And although Amazon might be turning into a delivery powerhouse, it’s not enough to put FedEx and UPS out of business.
About a third of Amazon’s products still rely on these outside shipping companies. And there are plenty of other businesses that aren’t on Amazon’s platform.
So, these shipping businesses aren’t like Blockbuster. They’re not suffering from any massive shifts in technology.
Consumers will still be buying items from a wide variety of sources — not just Amazon. And FedEx and UPS are in an excellent position to continue profiting as they do. It’s why they’re also expanding their own logistics services to meet demand.
Amazon’s investments show that there’s still plenty of room for higher gains in the delivery space.
My colleague Charles Mizrahi knows this well.
He recommended FedEx to readers of his Alpha Investor service back in September 2019. And they’re seeing open gains of over 108% in just over a year and a half. Right now, FedEx is above Charles’ recommended buy-up-to price. So, he doesn’t recommend you invest in it today.
But we’ll be keeping an eye out on this space for other opportunities as it continues to grow over the next few years.
Chad Shoop, CMT
Editor, Quick Hit Profits
P.S. Amazon’s Prime subscription was a game-changer for its business. And many other companies are seeing the power subscriptions can bring to their business. By moving from a model of one-time sales to one of recurring sales, virtually any company can maximize its profits.
Charles calls this shift the “Subscription of Everything” mega trend. And he’s put together a special presentation on the one stock that could benefit most from it — and possibly hand investors returns of 1,000% in the next few years.
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