Why You Should Buy Amazon

| About: Amazon.com, Inc. (AMZN)


Amazon.com Inc. recently announced that it has entered into an agreement with Twitter Inc. allowing customers to add products to their carts by using the hashtag “#AmazonCart."

This will enable Amazon to serve in accordance with the emerging trend of social shopping trends among customers.

Twitter will benefit from the advertisement revenue from the e-commerce industry as Amazon plans to increase its budget and spending on advertising products on Twitter.

Amazon will also attract more members as it signed a deal with HBO last month that will allow Amazon to stream HBO’s videos through Amazon’s video streaming service.

The online retail giant, Amazon.com Inc. (NASDAQ:AMZN), accounts for about 2% of worldwide retail sales and has recently announced that it has entered into an agreement with Twitter Inc. (NYSE:TWTR). This agreement will allow Amazon customers to add products to their shopping carts by using the hashtag "#AmazonCart" to any tweet with a product's Amazon hyperlink. In this article, I will discuss this deal and how it will benefit both parties. I will also elaborate prospects for Amazon and some other exciting products and services the company is offering its customers to grow its business.

What is the Deal About?

The idea behind this deal is that Amazon.com shoppers can add items to their Amazon shopping carts through their Twitter accounts. This will be done simply by replying to product offering tweets containing the product's Amazon hyperlink with the hashtag #AmazonCart. The next time the customers visit Amazon, the chosen item will be waiting in their virtual cart.

Users will be required to link their Amazon accounts with their Twitter accounts to avail the new service. The shopping tweets will be shared publicly on Twitter feeds if the user's account is unlocked as stated on Amazon's website. The items will not be bought until users go to their Amazon shopping carts to complete the transactions. Twitter users will get a response tweet from @MyAmazon along with an email from Amazon when the item is successfully added to their cart.

According to Amazon's spokesperson, #AmazonCart is intended to assist customers by adding products to their carts for later purchase without leaving Twitter.

Presently, this service is only available in the U.S. and the U.K., with the hashtag "#AmazonBasket" used in the U.K. Presently, Twitter users can add items to Amazon's cart, but to confirm the order, they have to visit Amazon and process the transaction.

How Will Twitter Benefit?

Twitter will not get any revenues in the form of sales commission from this partnership apparently, and it will not get a cut of individual sales made from the deal with Amazon. According to Bloomberg News, Amazon intends to increase its budget and spending on Twitter advertising products. This deal will generate advertisement dollars for Twitter from the e-commerce industry and retailers. Twitter has also been looking forward to new revenue streams beyond advertising services such as promoted tweets.

Twitter has been putting efforts into persuading advertisers and retailers by adding tools to help the company reach its 255 million users. By facilitating e-commerce, Twitter is hoping to retain consumers on its site for extended time and gather more information about their interests and shopping habits. This information will be valuable for advertisers and will add to the company's revenue. Twitter hired former Ticketmaster executive Nathan Hubbard as head of commerce last year to boost its efforts add direct shopping options on its site.

But will #AmazonCart work, and will it drive value for AMZN stock or Twitter?

Prospects for Amazon

A spokesperson from Amazon stated that Twitter offers a great environment for Amazon's customers to find out product recommendations from artists, experts, brands, and friends. The deal is Amazon's attempt to make social media a greater source for sales. The deal will enable Amazon to gain from potential customers' impulse-buying practices by making it easier to add items to their shopping carts without having to visit Amazon.com.

Although the financial benefits to Amazon have not yet been disclosed, a partnership between a social media player and an e-commerce giant is not a new thing. One can look it as an emerging trend that Amazon is adapting. For example, Chinese Twitter-like service Weibo Corp. ADR (NASDAQ:WB) has a similar partnership arrangement with an e-commerce giant Alibaba Group. The items sold by dealers on Alibaba's Taobao Marketplace are integrated with the microblogging service. This allows users to browse as well as buy products as the "buy" button is added to products' webpages on Weibo. The buy order on Weibo is then processed via Alipay, a service used by Alibaba to procure payments. This integration made Alibaba account for 43% of Weibo's ad revenues during the holiday season. This indicates that integration between an e-commerce giant and a social media company is beneficial for both parties. Now, let us discuss the emerging trend of social shopping that forms the market in which the Amazon and Twitter has entered.

The Trend of Social Shopping and its Outlook

As the use of social media is increasing, shopping has turned into more of a social activity. Social media is altering the way consumers around the world make buying decisions. The consumers are now using and relying more on social media to take note and learn about other consumers' experiences (70%); to find and gain more information about brands, products and services (65%); and commending brands (53%).

Social media has turned into a fundamental part of an inclusive online sales methodology, especially for millennial purchase process. Millennials, people born in 1980-2000, are the biggest generation of customers ever According to Teen Vogue's March 2014 Seeing Social survey on young U.S. women (age 13-29 or the millennial women), concerning the part social media plays in their beauty and fashion purchase process; 85% of the respondents bought an item after viewing it on a social media network. Twenty-six percent of the respondents stated they make a purchase directly from a social network. Furthermore, 47% of the respondents favored being able to purchase a product they viewed directly from the social network.

Amazon: Other Initiatives for Growth and Expansion

The Deal with HBO and Prospects from the Video Streaming Market

Amazon and Time Warner's (NYSE:TWX) Home Box Office, HBO, signed a streaming deal during the last week of April 2014 to stream HBOs videos through Amazon's video streaming service. This is the first time that HBO has licensed its programming for an online-only video streaming service. The deal will help Amazon to compete with Netflix, Inc. (NASDAQ:NFLX), the frontrunner of the video streaming market. Amazon has already surpassed Hulu and Apple Inc. (NASDAQ:AAPL) in the video streaming market in the U.S.

In the last 12 months, Amazon Prime's instant video service traffic has grown by 94% in comparison to the previous 12 months. This deal will certainly attract more customers to Amazon Prime even with the increased membership fee of $ 99 per annum. The Cisco (NASDAQ:CSCO) VNI initiative has estimated that global consumer internet video traffic, as a percentage of the total consumer internet traffic, will grow from 57% in 2012 to 69% in 2017. Furthermore, the use of internet TV will grow by 5 times from 2012-2017. This represents prodigious growth prospects for Amazon to capitalize on the video streaming industry.

Delivery Upgrades and Concluding Remarks

After testing Sunday deliveries in New York and Los Angeles for a few months, Amazon.com Inc. has recently announced it would offer this service to Houston and 14 other cities in the U.S. Amazon and the U.S. Postal Service have planned to expand its Sunday delivery services to a large portion of the U.S. population in FY 2014. Sunday delivery is accessible to Amazon customers without any extra charges. The notice of the service will appear at the checkout page if the service is available in the customer's region. Moreover Amazon has been putting efforts into rapidly expanding its warehouses and fulfillment services. These efforts are being made in an attempt to take over the delivery retail market.

The recently-announced partnership between Amazon and Twitter is in-line with the emerging trend of social shopping, and the integration will benefit both parties. While Twitter will be able to attract advertisement money from the e-commerce industry, Amazon will be able to take advantage of customers' impulse-buying practices. Moreover, Amazon is also enacting other initiatives to expand its business. The company signed a video streaming deal with HBO last month that will bring in more subscribers to the company's video streaming services. The company has also expanded its Sunday delivery facilities to more regions and is putting efforts into developing its warehouse and fulfillment facilities. These initiatives enacted by the company make it a worthwhile investment.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: The article has been written by a Gemstone Equity Research research analyst. Gemstone Equity Research is not receiving compensation for it (other than from Seeking Alpha). Gemstone Equity Research has no business relationship with any company whose stock is mentioned in this article.