Amazon Fresh Is Finally Ready for Prime Time
Could dropping monthly fees be the upside catalyst the market is looking for?
After years of promise but uneven results, Amazon’s (AMZN) online grocery efforts reached an important inflection point in late 2019 following the removal of Amazon Fresh’s $15 monthly service fee and the introduction of one- and two-hour delivery window options for Prime members. In our view, this decision removed two of the key barriers preventing Prime members from fully embracing online grocery--cost and convenience--and has triggered widespread interest in markets where the service is offered. Our analysis suggests not only a meaningful uptick in consumer awareness of Amazon’s grocery delivery capabilities, but also a 30%-plus increase in consumer adoption and order frequency rates based on website traffic and physical activity at Amazon Fresh fulfillment centers.
Why should investors find this information significant? One, it plays directly into our thesis that Amazon is pivoting away from customer acquisition and finding creative ways to engage with consumers, enhancing the network effect that underpins our wide moat rating. Two, it should reassure investors that the heavy investments that Amazon made in 2019 and will continue to make in 2020 are driving revenue higher. Three, because grocery is a high-frequency category, continued consumer adoption in 2020 could set the company up for revenue upside surprises in the quarters and years to come. Taken together, we believe the accelerated adoption of Amazon Fresh supports the longer-term revenue growth assumptions that underpin our $2,300 fair value estimate and gives us greater conviction in Amazon as our top pick in e-commerce in 2020.
R.J. Hottovy does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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