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Amazon Roundup: Prime Day, Network Switches, PillPack, More

Amazon’s AMZN big shopping day for Prime members, akin to Alibaba’s BABA Single’s Day, is kicking off today. Other than that, this roundup covers its PillPack acquisition, foray into network switching, Go Store additions, Chile expansion and logistics rumors.

Prime Day

Amazon continues to advertise the fact that it is helping SMBs by increased exposure on Prime Day. But what it’s really doing is making more money out of them. Participating third-party sellers who didn’t need to spend anything the first two years, spent $500 per lightning deal last year and are being charged $750 this year. They are also being encouraged to spend on advertising because of the typical increase in impressions and ad-attributed sales during this period.

Meanwhile, it has ensured that the biggest deals are on Alexa-enabled products like the Echo family, Fire TV and Fire tablets, because these devices will help extend its reach to more people.

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What’s more, there are also huge discounts on Amazon private label products from Stone & Beam, Rivet, Presto!, Wickedly Prime, Solimo, Goodthreads, Daily Ritual and AmazonBasics among others, covering categories like apparel, accessories, furniture, home décor and more.

So it’s possible that Prime Day is really big for Amazon but not as great for sellers. Post-event news will tell us more.

Overall, there are more than a million deals for customers in the U.S., U.K., Spain, Mexico, Japan, India, Italy, Germany, France, China, Canada, Belgium, Austria and, for the first time, Australia, Singapore, Netherlands and Luxembourg. The deals will be unlocked on Prime Day today and extend till end-of-day tomorrow. The event is designed to attract customers toward buying Prime subscriptions so Amazon can be their go-to place for shopping.

Coming off a strong 2017 for things like pencils, pens, notebooks, glue sticks, lunchboxes and backpacks, Amazon announced special deals targeting the back-to-school and off-to-college crowd. A June 2018 poll conducted by the National Retail Federation and Prosper Insights & Analytics found that more than a third of back-to-school and off-to-college shoppers did their shopping on Prime Day 2017 and more than half intend to do it on Prime Day 2018.

Plus there are special deals for U.S. customers at Whole Foods stores that could endear it to more people. In the days leading up to Prime Day, customers spending $10 in a single invoice in any store will get $10 to spend on Amazon during Prime Day, eligible Prime Rewards Visa card members will get additional 10% off, Prime members shopping Whole Foods for the first time will get $10 off their first purchase and $10 credit toward a future purchase, and many stores also have deals on Alexa powered devices.

Amazon is also arranging for surprise entertainment events unboxed from giant Smile boxes in major cities.

PillPack Deal Will Lower Prices

Amazon is reportedly buying startup PillPack for a billion dollars, possibly also outbidding Walmart WMT.

PillPack, which has thousands of customers across 49 states, helps people take their prescriptions by determining whether any of the medications counteract each other and then presorting and packaging them into their daily doses and mailing them a supply every 14 days. It’s therefore particularly useful for chronic or aged patients, or those who have multiple illnesses. It’s also particularly helpful because it deals with insurance companies on behalf of patients. Pillpack’s fees are included in the copayment paid to insurance companies.

Amazon already sells non-prescription (over-the-counter) medication for aches, colds and allergies through its Amazon Basics private label, and this acquisition is likely to broaden its scope into the prescription pharmacy business. To lay the foundation, Amazon tied with Berkshire Hathaway BRK.B and JPMorgan Chase JPM to form an entity without a profit focus that could create “technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost”.

It’s easy to see how PillPack could fit into the scheme of things, but implementation probably won’t be easy because of the pharmacy benefits managers that operate as gate keepers. The positive here is that Amazon and its partners are deep-pocketed, so they might be able to wrest business for the ultimate benefit of employees.

For comparison, Walmart offers a similar service wherein it charges $4 for a month’s supply of generic prescription drugs. So for Amazon’s initiative to be effective, it must price lower.

Network Switches Next in Line

The Information reports that Amazon is tapping white-box contract manufacturers Celestica and privately-held Edgecore Networks and Delta Networks for volume production of the kind of network switching it currently deploys in its own data centers. Amazon intends to sell these to its AWS customers, undercutting existing players like Cisco CSCO, Juniper and Arista Networks ANET. Broadcom AVGO is likely to be the winning chipmaker since it powers Amazon’s internal switches.

So within 18 months, AWS customers will reportedly have access to the switches, which will be priced 70-80% lower than comparable Cisco hardware. The switches will have some open-source software and built-in connections to AWS cloud services like servers and storage.

Despite the fact that the comparison is with market leader Cisco, Amazon’s success (if and when it comes) is likely to hit Arista harder because its business is built around software defined networking (SDN) while Cisco and Juniper’s businesses are based on traditional models, so include necessary software and support that make customer retention easier.    

Invited to Chile’s Tech Party

Amazon has been looking to expand operations in South America, so its representatives have visited government officials in both Chile and Argentina.

Since these countries are also looking to digitize their economies, adopt cloud-based services in government operations and transactions, and draw foreign investment, this could be just the right time for infrastructure providers like Amazon and Alphabet GOOGL to jump into the scene.

Proximity to customers is in any case a positive for cloud infrastructure providers because it reduces latency of cloud based applications, making them more responsive.

More Go Stores

In Fall 2018, Amazon intends to open its second Go store concept in a 36-story building in a heavily trafficked part of central Seattle. The 3,000 square foot store is nearly double the size of the original Go store. It employs no cashiers but quite a number of other people at the entry and for restocking the shelves, so customers entering by scanning a 2D code from the Amazon Go app in their phones can pick items and walk out. Cameras on the ceiling track the customer’s picks and charge their Amazon accounts.

Meanwhile, the company continues to employ people for the San Francisco Bay area store, indicating that it is getting closer to opening. Last month, the company advertised openings for four new associate positions, for which it received more than 50 applications. This followed the filling of managerial positions.

Logistics

Cowen airlines analyst Helane Becker says that Amazon has ordered additional cargo jets from Atlas Air Worldwide to add to its Prime Air fleet between 2019 and 2022. Moreover, if Amazon increases the number of leased jets from Atlas, it could also increase its stake in the company from the current 19.9% to 29%. Amazon currently leases 20 Boeing 767s from Atlas and another 20 jets from Air Transport Services Group for cargo movement.

An Amazon representative didn’t comment on “rumors and speculation” but the rumor goes that Amazon will place additional orders once the current order is successfully fulfilled before the busy holiday season.

 

Recommendation

Amazon shares carry a Zacks Rank #3 (Hold). For better buys, take a look at the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Wall Street’s Next Amazon

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