amazon prime

Amazon has announced a partnership with GrubHub and would offer Prime users in the US one-year free membership of Grubhub which usually costs $9.99 per month. While Amazon stock was trading flat in early price action, DoorDash and Uber are trading sharply lower.

Amazon also announced that Prime Day in the US would be held between July 12-13. The sales trend for this year’s Prime Day would be closely followed by analysts considering the slowdown in retail sales. In Q1 2022, Amazon reported its slowest sales growth since the dot com bust. The stock has sagged over the last year ever since Andy Jassy took over as the company’s CEO.

However, the crash in Amazon stock has more to do with the slowing growth and rising costs that the company is battling. Like fellow stay-at-home winners, Amazon is also seeing its sales growth rates taper down from the pandemic highs. To make things worse, the recent earnings of brick-and-mortar retailers revealed a worrying trend where sales of discretionary products have fallen.

Meanwhile, commenting on the deal with GrubHub, Amazon said, “Members can use this new perk in more than 4,000 cities with hundreds of thousands of restaurants across the country when ordering on Grubhub.”

Through the deal with GrubHub, Amazon is strengthening its Prime streaming offering. Earlier this year, Amazon raised the monthly prime subscription from $12.99 to $14.99 and the annual subscription from $119 to $139. There has been a streaming war and Netflix is now looking at stagnation in key markets. The company would now crack down on password sharing and possibly look at an ad-supported model to revive its sagging sales.

Uber, DoorDash Fall after Amazon’s Deal with GrubHub

Meanwhile, food delivery companies like Uber and DoorDash are trading lower this morning after the announcement. Given the massive base of Amazon Prime customers, markets fear that the company’s deal with GrubHub would take away some business from them.

Also, Amazon has taken a 2% stake in GrubHub and might look at increasing the stake further. The company is known to disrupt the industries that it enters into and the US food delivery industry looks next on the e-commerce giant’s radar.

Amazon has also announced new content on Prime. The company completed the acquisition of MGM earlier this year which has added to its library. Prime is a key moving part of Amazon’s success and helps increase customer stickiness on the platform by offering free and quick deliveries.

Jamil Ghani, vice president of Amazon Prime said, “Being the first to watch a sneak peek of one of the most highly anticipated shows of 2022 or ordering your favorite takeout while watching a football game on a TV you snagged for a great price—that’s the promise of Prime, and there’s never been a better time to take advantage of all the membership has to offer.”

Most Wall Street Analysts Like Amazon Despite the Crash

Wall Street analysts have lowered Amazon’s target price progressively over the last year. However, most remain bullish on Amazon and rate it as a buy given its exposure to secular long-term growth industries like e-commerce, streaming, cloud, and digital advertising.

The company’s cloud operations are hugely profitable and it is the market leader in the space. Last month, Redburn initiated coverage on Amazon stock with a buy rating. The brokerage believes that AWS (Amazon Web Services) is alone worth $3 trillion, or roughly 3 times its current market cap.

JPMorgan also reiterated the stock as its best idea for the second half of the year. Several brokerages listed Amazon stock as a top 2022 pick. However, the stock’s price action has disappointed so far. In the first quarter of 2022, the company talked about incremental costs from overcapacity and inflation. It however said that it is working on the controllable costs.

Rising inflation and the resultant rate hikes are making most brokerages bearish on the US economy. Citi now sees a 50% probability of a US recession. Other brokerages have also raised their odds of a US recession over the next year.

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