Amazon.com, Inc. is headed toward the biggest buyout of its existence, but that story may be driving traders to ignore some of the truly important moves at the Seattle firm. A new report, published by Baird Research on Thursday, suggested that “Prime Air” is one of the big movers that those buying and selling Amazon stock may be missing. Perhaps Whole Foods Market, Inc. is overblown.
Colin Sebastian, who authored the report on Prime Air, studied airport freight traffic in Cincinnati/Northern Kentucky International Airport. He found substantial rises in freight traffic, and he linked them to the firm’s big entry into logistics and planning. That’s a major move, and one that traders should be watching.
Why am I watching Prime Air?
Most people know one thing about Prime Air: drones. That’s not something to get really excited about just yet, however. Though Amazon.com, Inc. is working on getting drone delivery off the ground, it’s not likely to come to a town near you any time soon. That means the program is, for the time being at least, just a way for Jeff Bezos to get his firm on the news.
What Mr. Sebastian wrote about in his report was, instead, the cargo airline that Amazon began to operate late last April. The project is based at Cincinnati/Northern Kentucky International Airport and it’s growing precipitously.
According to the Baird report year to date air traffic has increased by 175 percent compared with last year. The month of May saw increases of more than 600 percent year on year.
Mr. Sebastian wrote that “We view Amazon’s ability to rapidly scale its air cargo investment as an indicator of the company’s logistical sophistication, and should widen the competitive moat relative to other sub-scale retailers that rely on third-party carriers.”
Amazon can’t be focused on Whole Foods
It’s understandable that Wall Street would be so focused on Amazon.com, Inc. moving more and more into brick-and-mortar stores. The Whole Foods Market acquisition is likely to be one of the big stories of 2017, after all.
It’s just one piece of the puzzle for Amazon stock at the end of the day. In a year or two, if Amazon fails to reform Whole Foods, Prime Air may be a much bigger component.
Amazon is a retailer, and almost all of its cashflow still comes from the simple act of selling third party products to consumers.
We know that almost anything can happen in the Whole Foods Market, Inc. deal. Wall Street is still pricing in a big fight over the grocery chain. Shares are, at time of writing, selling for $43 each. That’s above the $42 that Amazon bid in its buyout offer. As that story plays out, there’s likely to be drama, and highs and lows.
Those who believe in Amazon.com, Inc. stock, however, would be wise to discount the effects of that deal. Jeff Bezos has put together the most impressive retail operation the world has ever seen. Projects like Prime Air are helping to build out its logistics base. Given the CEOs penchant for remarkable growth that business in itself could be bigger than whole foods in a short few years.