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Couch Commerce Is Sitting Pretty

25 February 2015 in Trading Ideas

The holiday season keeps on giving for investors of some of the largest e-commerce companies.

Several top names have rallied hard since the new year began, due in large part from strong results seen recently in the holiday quarter.

Amazon share prices have climbed more than 22% in 2015, covering most of that ground in the three-and-a-half weeks since the online retailer last reported earnings late last month.

At first glance, the results don’t seem that ideal. The company’s fourth-quarter profit fell, its revenue didn’t meet expectations, and Amazon said it could lose money in the current quarter.1

But Amazon, perhaps more than any company, has seen its investors willing to suspend hard-core top and bottom-line goals as long as the company continued to show that its march toward market domination was on track.

And in those details, the New York Times suggested after the company’s report, Amazon once again answered investors’ call.

As the Times noted, Amazon’s delivery service, Prime, is surging. Amazon said its worldwide paid membership in Prime rose 53% in 2014. A price increase for Prime to $99 apparently discouraged few customers, said the Times.

Prime is the key to Amazon’s attempt to build an ecosystem where people use Amazon devices to watch Amazon-produced content that is surrounded by ads for Amazon products that are delivered by Amazon’s fleet of drones, the Times said.

Analysts say they think Prime has around 40 million members, the Times reported, although the company hasn’t yet put a number on – or offered any hard facts about – how much a new Prime member increases its shopping. “They do step up their purchases very considerably,” the company’s chief financial officer, Thomas J. Szkutak, said in a conference call cited by the Times.

Shares of Amazon comprise a 24% weighting in the Couch Commerce motif, which has risen 10.3% in the past month. During that period, the S&P 500 has risen 3.1%.

In the past 12 months, the motif has gained 3%; the S&P 500 is up 16.5%.

The motif’s recent rise also has been lifted by its other heavyweight component Priceline (25.4% weight), which saw its fourth-quarter bookings rise 17% in its latest quarter from a year earlier.2

More importantly perhaps, Priceline said international bookings jumped 19%, which helped the company overcome volatile foreign-exchange rates.

Priceline, whose sites include Booking.com and Kayak, has been acquiring companies and striking partnerships to compete with existing rivals and new entrants like Google Inc. as the online travel-booking industry consolidates. Just last week, Expedia agreed to buy rival Orbitz for $1.34 billion.

Outside of the jockeying for individual market share, the growth of online shopping once again increased with strong sales numbers. Last week, the Commerce Department revealed that US web sales rose to nearly $305 billion in 2014, growing 15.4% from a year earlier, marking the fifth year in a row that sales have grown at or around 15%.3

1David Streitfeld, “Amazon Reports a Profit, Citing Prime as the Key,” nytimes.com, Jan. 29, 2015, http://www.nytimes.com/2015/01/30/technology/amazon-earnings-profit-prime.html, (accessed Feb. 23, 2015).

2Annie Massa, “Priceline Gains as Earnings Top Estimates on Overseas Travel,” Bloomberg.com, Feb. 19, 2015, http://www.bloomberg.com/news/articles/2015-02-19/priceline-earnings-beat-estimates-as-international-bookings-rise, (accessed Feb. 23, 2015).

3Allison Enright, “U.S. annual retail sales surpass $300 billion for the first time,” internetretailer.com, Feb. 17, 2015, https://www.internetretailer.com/2015/02/17/us-annual-e-retail-sales-surpass-300-billion-first-ti, (accessed Feb. 23, 2015).

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