This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
- Amazon is now allowing U.S. Prime members to add items to already-scheduled deliveries.
- This will make it easier to get same-day or next-day shipping for some items.
- Add-on items represent almost pure net profit for Amazon, since most expenses are already accounted for.
Does this situation, described in a recent Amazon (NASDAQ: AMZN) news release, ever happen to you?
"You place an Amazon order, then realize there's something else you need.... Maybe it's five minutes later. Maybe five hours. Either way, you'd like it delivered with your next order."
Well, it happens to me. All. The. Time. But up until now, when it happened, I just had to suck it up, put on pants, and head to a local retailer to get what I wanted -- or go without.
Now, however, Amazon has rolled out a new Prime perk called Add to Delivery. Not only will it solve this problem, but it could also meaningfully boost the company's e-commerce bottom line. Here's what investors need to know.
Prime time
That's right: U.S. Prime members can now add items to an upcoming delivery with just a single tap on their phones. The feature -- which is available on the Amazon Shopping app and the mobile website -- allows you to tap a button labeled "Add to today's delivery" (or "tomorrow's," or whatever) to instantly add eligible items to your next upcoming delivery. That may sound like a marginal improvement at best, but it could pay big dividends.
Research has shown that a majority of U.S. online shoppers start their product searches on Amazon. So it stands to reason that if Amazon users need something quickly, they'll first check its website to see if same-day or next-day Prime delivery is available. However, if they can't get it on Prime in time, some won't even bother looking at other e-commerce sites.
That's because Amazon Prime has established such a strong reputation for speedy (and free) delivery. Many users -- myself included! -- usually assume that no other service can deliver an item as quickly or cheaply as Prime.
And we're usually right. Amazon has unparalleled internal logistics and a huge in-house delivery network that doesn't require it to rely on outside shippers for speedy deliveries. If Amazon can't get it to your doorstep by tomorrow, it's unlikely any e-commerce retailer can.
The only other option is to find a local source for the item. That could mean ordering it online from a competing retailer like Target or Walmart for local in-store pickup, which is an option that Amazon can't offer for most items.
How it could boost revenue
Estimates suggest that the average Amazon customer places between 70 and 75 orders per year, which works out to about one order arriving every five days. That means, on average, an Amazon customer has an order arriving within the next 48 hours a little less than half the time.
However, the average Prime member tends to order more often than that -- nearly 100 orders per year in 2024, according to Amazon -- meaning they're more likely than not to have an order arriving within 48 hours. And between two-thirds and three-quarters of all U.S. Amazon shoppers were Prime members in 2024 -- an estimated 200 million of them.
Even if this new policy results in only $5 in extra net sales per Prime member over the course of a year, that would add up to $1 billion in net revenue. But the quality of that revenue is very important here.
How it could boost earnings
Amazon's e-commerce business operates on very low margins. The vast majority of its North American e-commerce net sales -- which don't include the cost of goods sold -- are eaten up by operating expenses. In 2023, the company netted $352.8 billion in North American e-commerce sales, only to have about 95.5% of that ($338 billion) going to operating expenses. In 2024, its $387.5 billion in net sales lost "only" 93.5% (about $362.5 billion) to operating expenses.
But adding extra items to a customer's existing e-commerce order costs Amazon practically nothing. The company would have to expend the resources to make the delivery (driver salary, van fuel) regardless, so unless the customer is adding particularly bulky items that displace other orders (and it's unlikely Amazon would let customers do so), much of the net revenue from these add-ons would flow to the bottom line.
So if Add a Delivery could boost net revenue by $1 billion, as we suggested above, that would represent a 4% increase to the North America e-commerce unit's current $25 billion bottom line. If it could boost net revenue by 1%, or $3.6 billion (which may be ambitious), that would translate to a 14.4% bottom-line increase.
Even if you don't call a double-digit increase a "game changer," it's easy to see how this small upgrade could have a very big effect on earnings.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
