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Amazon's Next Potential Game Changer: Drone Deliveries

Sep. 13, 2020 11:41 PM ETAmazon.com, Inc. (AMZN)33 Comments
Güner Soysal profile picture
Güner Soysal


  • On August 31, CNBC reported that Amazon has received federal approval to use drones for its delivery operations.
  • The use of delivery drones could be a true game changer, not only for Amazon but also for delivery services, logistics and human life in general.
  • In the following, I would like to discuss the opportunities and risks for Amazon and its shareholders in connection with the use of drones as delivery items.
  • Additionally, I will evaluate why Amazon shares are still favorably valued and offer an attractive entry point.

1. Introduction

On August 31, CNBC reported that Amazon (NASDAQ:AMZN) has received federal approval to operate a fleet of delivery drones. With this move, the company follows UPS and Alphabet's (GOOGL, GOOG) Wing, which had already received FAA approval for their drone delivery operations.

When announcing the quarterly figures for Q2 2020, Alphabet's CEO Sundar Pichai mentioned that Alphabet-owned Wing has started delivering library books to students in Virginia.

In the context of the FAA approval for its Prime Air delivery drone fleet, David Carbon, vice president of Prime Air, stated the following:

“We will continue to develop and refine our technology to fully integrate delivery drones into the airspace, and work closely with the FAA and other regulators around the world to realize our vision of 30 minute delivery.”

Just recently, Amazon has invested several billion dollars to shift from two-day to one-day delivery. With the use of drones, the delivery time is targeted to be reduced to up to 30 minutes. At least, this is the company's vision.

As you can imagine, the FAA approval for Amazon's delivery drone fleet represents a true milestone, not only for Amazon but for delivery services, logistics and human life in general.

In this context, it is also noteworthy that Walmart (WMT) announced on September 9 that it will also test using drones for deliveries.

In general, drone deliveries are not a distant vision, but a reality in China, for example. Especially in rural areas of China, which are difficult to reach, orders are already being delivered via drones, according to several reports.

In the following, I would like to discuss the opportunities and risks for Amazon and its shareholders in connection with the use of drones as delivery items.

Furthermore, in the subsequent section, I will evaluate why the company's shares are still

This article was written by

Güner Soysal profile picture
Real Financial Dynamics - Investing In Growth In Every Market Phase. Banker, Investor, Investment Advisor, Wealth Manager, Finance Blogger from Germany. Website | Instagram | LinkedIn | Güner Soysal

Analyst’s Disclosure: I am/we are long GOOG, GOOGL, ZM, AMZN, FB, NFLX, DOCU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (33)

investor_newbie profile picture
For fair value of $4762, what discount rate did you use?
As it currently stands, it would be impractical to use drones. Currently the FAA requires an individual to have a license to operate a drone, the drone must be within physical view, you may only operate one drone at a time, battery lasts around 20-30 minutes. FAR part 103.
Gary J is Rich on AMZN profile picture
@Hu Er Yu

What are you not getting about this?

"On August 31, CNBC reported that Amazon has received federal approval to use drones for its delivery operations."

FAA approved Amazon's proposal. Period.
Study up. There are several companies with FAA waivers allowing them to fly BVLOS.
I like Amazon, but my thesis does not currently consider drone delivery. The current consideration is using mall space for 1)warehouse, 2)whole foods, 3)warehouse showcase. The customer experience is: enter at the warehouse showcase, select items, shop whole foods, pay for everything, pick up from warehouse drop box.

With this model, drone delivery development/implementation can be deferred.
Drone delivery is going to be essential in reducing last-mile delivery costs in rural areas. If there is a nearby mall, then you know drones aren't going to be implemented in that area.
Thanks for your insights. I am curious to understand how much it would cost to ship an identical package via drone vs a conventional delivery service. Of course, depreciation, FAA compliance costs, and routine maintenance should be included in the equation. Drones sound “cool”, but the numbers will ultimately dictate how mainstream this becomes.
Gary J is Rich on AMZN profile picture

You can start with the cost per mile to put trucks on the road - usually a substantial number.
@Skih20 I envisioned something like a mobile hub-and-spoke. A truck, loaded with drones, drives to a near- optimal, quasi-central point for a number of deliveries. Release the squadron of drones relevant to those deliveries. Drones return. Truck drives to the next quasi-central point for the next squadron and repeat until truck is empty and needs to return to the mother hive.
Gary J is Rich on AMZN profile picture
Just like I commented about the Delivery Robots they announced. A truck drops off the robot loaded with packages in my gated community and comes back later to retrieve or reload the bot.
Drone delivery is still and will be a science fiction in near term, how could it become a game changer for Amazon? Remember you are a long time bull for Wirecard - the Dax star from Germany, check how it has developed so far:))
Güner Soysal profile picture
Dear @StockHarvestor ,

thank you for your comment. I was bullish for Wirecard, but have pointed out in every article that this is only under the condition that the numbers are correct. You should know that if you have really read my articles.

Just like the German authorities and international secret services, I couldn't know that it was a fraudulent company until the moment of the release of the KPMG report.

In the sake of fairness you should also mention that I was also bullish for the following stocks: Apple, Amazon, Facebook, Qualcomm, Paypal, Zscaler etc. See my profile with all my articles: seekingalpha.com/... ;)

Have a nice day!

Best regards,

cramerkim profile picture
@StockHarvestor drone delivery is dramatic And practical in rural area.
Gary J is Rich on AMZN profile picture

"Drone delivery is still and will be a science fiction in near term"

Newsflash: They are already doing it in the U.K.
Anyone else worried about all the electromagnetic radiation we'd be exposed to from this? We already have cellphones and wifi... Now having remote controlled drones flying everywhere too is sure to give people health problems...

The body is electromagnetic, folks...
Erin Snarkovich profile picture
@ssanghera187 What's that saying about staying quiet and letting people assume you're a fool, instead of opining and removing all doubt?
cramerkim profile picture
@ssanghera187 I hate electromagnetic but now no choice. Only strong humans survive.
whoisjohngaltmn profile picture
@ssanghera187 ...I agree with you. I wear tinfoil hats and found it to be very beneficial.
Michael Dolen profile picture
The thing is, drone deliveries will require human control. Not autonomous. FAA won't change that anytime soon. So rather than pay a driver, you pay someone to fly it from a computer. I'm not sure on the rules of one person operating multiple drones simultaneously, or if that's even allowed yet.

In short, yes some day drone delivery will undercut cost of driver, but that is many years off. Plus, this will only work for the smallest/lightest deliveries.

In dense urban areas where you have door after door, each with an Amazon delivery, the current van method is actually very efficient and will remain so for the foreseeable future.
It's a TOP profile picture
@Michael Dolen

Drone delivery can be just like modern airplanes. Only landing and take off are under pilot control. The rest of the time it's autopilot. Drones can spend the majority of their flight time autonomous.
Gary J is Rich on AMZN profile picture
@Michael Dolen

"In short, yes some day drone delivery will undercut cost of driver"

Right, running trucks on the road is free. duh
80% of Amazon's orders can be delivered via drone. This will be especially useful in rural areas where last-mile delivery costs are greatest.
Hudson Investments profile picture
I expect that $4,700 is a bit rich for the stock. I see $3,700 to $4K per share by the end of 2020
Chart Rider profile picture
Can't wait until the first ice storm. Amazon boxes be crashing through house and car windows like armageddon.
It's a TOP profile picture
@Laughing from the Links

Or they just won't fly during an ice storm just like UPS stops during extreme weather also.
@It's a TOP don't you think it would be hard for a multi-trillion dollar company to just turn on a dime with a, "No drones today, folks! There's a storm about to happen in 2 hours!" type of action? Usually, these behemoth companies take weeks to decide what color drapes to hang on the front headquarters lobby... I don't see them side stepping, dodging and ducking storms on the fly...
yogatech profile picture
@Laughing from the Links It would make for a funny movie.

"Amazon drones in an Ice Storm"
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