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Summary

  • Amazon Local Service is Amazon.com's newest venture, allowing customers to purchase professional services from local third-party service providers that are vetted by Amazon.
  • There are many new ventures that Amazon.com is experimenting with, but this one expands on its expertise in e-commerce and strengthens the rationale for my long position in Amazon.com.
  • This venture into local services comes as a welcome surprise and may be one of the few ventures the company has undertaken that will directly contribute to its e-commerce business.

Amazon.com (NASDAQ:AMZN) is quietly experimenting with a new venture in offering local services within select cities (Seattle, New York, and Los Angeles so far). Under the banner of 'Amazon Local Services', Amazon.com offers customers "professional services for assembly, set-up, installation and repair work." All service providers offering services on Amazon.com are vetted by the company. If this pilot run is successful, the company will likely expand nationwide and perhaps even offer more services such as plumbing, electrical work, and childcare. Other companies like Angie's List have failed to dominate this $400 billion services marketplace in the U.S., but Amazon.com is the undisputed leader of e-commerce and has a rich product review system, all of which may provide the company with an edge over its more established competitors in this space.

After establishing a dominant position in e-commerce, Amazon.com has ventured into e-readers, tablets, a smartphone, delivering groceries, cloud computing, becoming a content producer, and let's not forget drone-aided deliveries. It is difficult to quantify how much these ventures have contributed to additional revenues since the company does not provide these details. But, given Amazon.com's incredible revenue growth of about 20%, it is likely that at least some of these ventures are working. Unfortunately, these ventures are eating into the company's profitability and after missing earnings estimates for the third straight quarter and guiding to about $1/share loss next quarter, investors are growing impatient with the company.

This new venture into local services may be just what the company needs to more directly expand its dominating position in e-commerce. Best of all, this venture does not require any investment in warehouses that are a big expense for the company as it tries to fulfill orders in as little as a few hours. Instead, Amazon.com needs to develop a method for vetting local service providers and to get insurance for services provided. In return, Amazon.com pockets as much as 20% of the transaction cost. This new venture makes sense for the company as it is already dominant in e-commerce. It also seems like one that will help and not hurt Amazon.com's profitability, which may just allow investors to breathe a sigh of relief. News of this sensible venture strengthens my belief that Amazon.com is a buy at these depressed post-earnings level.

Disclosure: The author is long AMZN. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Update: Amazon.com Finally Has A New Venture (Into Local Services) That Makes Sense