The holiday season has arrived, and Amazon (NASDAQ:AMZN) appears to be geared up for it. The company's dominance in the e-commerce industry and the expected growth in online retail sales during the 2013 holiday season suggest that the online giant can post strong fourth quarter results. While there is going to be some competition from traditional retailers including Wal-Mart, Best Buy, Target and others, Amazon will continue to benefit from its growing prime membership and competitive pricing.
Online Retail Sales Expected To Jump 15% During The Holiday Season
According to National Retail Federation, the holiday season retail sales will increase by 3.9% this year amounting to $602 billion. This growth is higher than what the retail industry saw last year, as well as above the last decade's average. The positive outlook stems from the gradual improvement in the economy. Another contributing factor could be retailers getting increasingly competitive on price because of the growing competition from online retail giant Amazon. For instance, a customer qualifies for free shipping if he/she purchases goods worth at least $35 at Wal-Mart's (WMT) online portal, which is the same as that for Amazon.
According to shop.org, online retail sales are expected to jump 13%-15% during November and December, amounting to $82 billion. This will fuel Amazon's growth which already expects its fourth quarter revenues to increase by 10% to 25%. Although this seems like a large range, the actual growth could be north of 20% given the company's recent guidance history. According to a survey conducted by Nielsen, 46% of the respondents stated that they will buy online on Cyber Monday. This figure is up substantially from the last year.
Amazon Still Has Sharp Competitive Edge
Amazon's Q3 2013 revenue growth of 24% stood at the higher end of its guidance, which is testimony to the company's domination of the global e-commerce market (according to SEC Filings). While eBay (EBAY) has been concerned about slowing e-commerce growth in the U.S, Amazon doesn't seem to feel it. The e-commerce market is witnessing explosive growth across the globe and the online retail giant continues to benefit from it due to its massive scale and attractive pricing. Amazon is also reaping benefits from growing prime membership and the surge in the online sales of fashion apparel and consumer staples. According to eMarketer's September report, overall e-commerce retail sales in the U.S. are expected to reach $260 billion in 2013, representing close to 16% growth over the last year. This is still a fraction of the country's total retail sales, which indicates large room for growth. The same market research firm forecasts U.S. online retail sales to grow at a CAGR of 14% over the next few years, surpassing $434 billion by 2017.
How Prime Membership is Helping Amazon
According to a Morningstar analyst, Amazon Prime had more than 10 million members as of March 2012. The company further stated during its recent earnings that it added millions of prime members. Assuming that the member count is somewhere close to 13-15 million currently, Amazon would be earning close to $1 billion to $1.2 billion in annualized revenues at membership fee of $79 per year. However, the advantage of this service extends far beyond these revenue figures. According to the same Morningstar report, Prime customers tend to buy twice as much as the regular customers and overall accounted for 10% of the purchases in 2012. This proportion could increase going forward as Amazon continues to invest in the streaming content to lure in more buyers. The company has acknowledged that Prime customers are more valuable, as they tend to be stickier and often make cross purchases. Amazon is likely to leverage this fact to drive sales during November and December.
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