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Summary

  • Amazon.com leaps for paradigm shift due to crowding in the same-day delivery space.
  • I provide an analysis of Eminent Domain of the "Heavens" & Logistics via Easement.
  • Amazon.com: Investments in India and their tolerance for unmanned flight is a leading indicator.
  • Matching Amazon's Prime Air with key consumer goods is a thesis for trickle-down sales growth.

Following the broadcast of Super Bowel XLVIII, Amazon.com (NASDAQ: AMZN) CEO Jeff Bezos, informed the world via CBS 60 Minutes that octocopters (drones) would one day deliver packages. Audiences were still recovering from the shock of the best NFL offensive team, the Denver Broncos, losing by a historic point differential -- skeptical ears were attuned. At the same time, American consumers had grown concerned about new tech and the correlation to government surveillance due to information leaked by Edward Snowden.

Funding The Paradigm Shift

Although the public had long been accustomed to ultralights and hot air balloons navigating overhead without a licensed pilot (14 CFR Part 103), they were not making the same connection with octocopters. The concerned correlation between a UAV and a small mounted video camera, a common application via GoPro (NASDAQ: GPRO), gave consumers pause (See Preparing For The Defense: Mind Reading Skills and Surveying). Would delivery drones reduce privacy? This new found caution for privacy hadn't slowed down push button contracts for smartphone apps.

Currently, app sales are still robust, especially when paired with celebrity endorsements, e.g., Kim Kardashian and Glu Mobile's (NASDAQ: GLUU) "Kim Kardashian: Hollywood". Contracts like these allow access to phone status and identity, test access to protected storage, determine approximate location, etc. Google's map and street view has already captured our images, homes and vehicles. The only privacy: small blurs to cover our faces and license plates.

Amazon.com can't surpass the already softened barrier between consumer privacy and trending services, it merely needs to address the proclivity. With Bezos' (Nash Holdings LLC) purchase of the Washington Post and the use of D.C. based lobbying firm, Akin Gump Strauss Hauer & Feld, Amazon.com will be able to emphasize the pros and diffuse the cons. An ability to deliver product within 30 minutes, is the leap needed to surpass the competition in the same-day delivery space. Wal-Mart (NYSE: WMT) and Google Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL)have also added same-day service.

Eminent Domain of the Skies

Cuius est solum, eius est usque ad coelum et ad inferos: Whoever owns soil, is theirs all the way to heaven and to hell. That was an old principle of property rights before most of us ever had a mortgage. Mistakenly, many feel they have dominion over their airspace. This loss of ownership dates back to 1946 when eminent domain of the skies took place via case law (see United States v. Causby). It led the way for passenger airlines to serve the public. Additionally, the low flying ultralights also received this benefit, but without FAA regulations for minimum cruising altitude.

The second issue is if an easement is created by a low flying "vehicle" (octocopter) or "aircraft" (Boeing 777). A cruising altitude of 300' should be sufficient to avoid any forced easement. For the purposes of drone deliveries, this issue could also be addressed by navigating the already established easements: utility lines (see CenterPoint v. Bluebonnet). If Amazon.com partnered with the local utilities and consumers gave access (push button contract) to a landing pad just like they do an electric meter, drones could deliver with minimal intrusion.

Amazon.com's Activity in India is a Leading Indicator

Amazon.com's recent investment of five additional warehouses/fulfillment centers in India should pose a question: what are they thinking? This is either one of their mediocre moves (like joining a crowded tablet space) or it is a catalyst like their Amazon Prime. As further researched by Piyush Arora, "Indian e-commerce industry is expected to grow at a scorching pace over the next ten years..." It is here that I add to the thesis: delivery drone beta testing.

India's drone flights are limited to cruising altitudes of 200' to 400' which encompasses the 300' optimum level per MIT's drone expert, Professor Missy Cummings. The interview conducted by CNN in December 2013 brought some issues to light, all of which can now be addressed. What if deliveries attract "pot shots"? The answer is that deliveries will be made within congested cities, such as San Francisco, where firearms are under stiffer regulations. Some of Amazon's world market prohibits personal possession at all. Cummings stated that Amazon would need a "secret insight" with FAA. This insight has been identified in the aforementioned developments of the Washington Post and Akin Gump Strauss Hauer & Feld. Cummings thought it more likely that delivery drones would take shape in other countries first. This last issue, really isn't an issue.

"[T]he world's commercial drone market is expected to reach $11.4 billion by 2020, with an average growth rate of 8 percent per year from $6.6 billion last year..."

On July 10, 2014, Amazon Prime Air filed its application for exemption (Docket ID: FAA-2014-0474) to the FAA Modernization and Reform Act of 2012. This was the same time that political heat had been increasing and U.S. Congress was pushing for the FAA to assist in getting commercial UAVs in operation.

Prime Goods for Prime Air

I have to address the remaining problem of cargo weight. The Prime Air will not be able to deliver a flat screen television, but a top selling electronic for Amazon.com is the GoPro Hero3, which weighs approximately 1.5 lbs. Other small-cap product lines would make a good fit, such as Skullcandy's (NASDAQ:SKUL) line of headphones. In summary, 86% of the items sold by Amazon.com are 5 lbs. or less and fit the specs for the drones. For Q2 2014, Worldwide EGM revenue increased to 69% of sales.

Conclusion

Remove the disbelief and check the channels for the development of delivery drones. Watch the FAA exemption request. It could be granted in Q3. I would not be surprised that Amazon.com already has the fleet and tech to launch by Q4. They keep at lot of their R&D discreet. It would explain where all of it has gone (Q2 2014 of $4.29 billion). If U.S. regulations provide further resistance, observe the activity in India for signs of use. The delivery drone is likely Amazon.com's next catalyst.

Source: Amazon Delivery Drones: Indications Point To India For Beta Testing

Additional disclosure: Other than the long position in SKUL, the author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.