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|The Amazon Local Register.
Photographed by Amazon.com.
Amazon stock(Nasdaq: AMZN) closed up 2.18% today (Wednesday) on the company's announcement it will launch a mobile credit card reader called Amazon Local Register. AMZN shares continued to make small gains after hours.
For $10, users can purchase Local Register and plug it into the headphone jack of a smartphone, tablet, or Kindle. Via the same network that processes Amazon.com purchases, Local Register will process these mobile credit or debit swipes. Amazon believes Local Register will prove the "easiest way for small businesses to get paid."
"Payments are hard and that's one of the things that gets in the way of serving customers, especially for small businesses," Amazon vice president of local commerce Matt Swann said. "Payment tools need to be inexpensive, simple, and trusted to get the job done."
The move represents a further step into physical brick-and-mortar retail by the world's largest online retailer. In December, Amazon announced a full launch of its consumer goods membership warehouse Pantry. Then in February, the company confirmed its acquisition of Double Helix Games, a new foray into gaming content. In April, it announced its Amazon Fire set-top box TV. And in July, it launched the Fire Phone.
The company that seems to want to gain market share in every profitable nook and cranny couldn't pass up on the mobile payment business, which is undergoing tremendous growth.
According to data compiled by Statista, global mobile payment transaction volume was expected to increase from $163.1 billion in 2012 to $235.4 billion in 2013. The statistics firm predicts those numbers will jump to a whopping $721 billion by 2017.
What's more, more than 90% of U.S. retail sales still take place in physical stores, according to U.S. government data.
Amazon will use its same old bag of tricks to break out in the mobile payments sector - it's undercutting the competition to get a foothold, just like it did with the Kindle, the Fire Phone, etc.
Popular mobile payments startup Square charges a 2.75% transaction fee; Paypal charges 2.7%. Amazon Local Register will charge a lower introductory fee of 1.75% for small businesses that sign up before Oct. 31, and that rate will last through the end of 2015. But even without the "act fast" tactic, Amazon's regular rate of 2.5% still undercuts the competition.
"I've actually heard some business owners say the only thing that would make them change (point of sale) systems is cost savings," Swann said.
That'll be a problem for Square, which is already operating on a paper thin profit margin. Square lost approximately $100 million in 2014 and has gone through half of the $340 million in its venture capital funding, according to The Wall Street Journal. The report went on to say that when a deal between Square and Starbucks (Nasdaq: SBUX) fell apart last year, it cost Square around $20 million.
As Amazon widens its moat with Local Register, AMZN stock is primed to benefit.
But the company is notorious for costing a premium while not giving much back to investors...
On July 25, Amazon posted its biggest earnings per share (EPS) loss in two years. That the company notched quarterly loss should come as no surprise - for many analysts, this is a number to ignore when it comes to Amazon.
"Amazon is not going to turn a profit. We already know that," Keith Bliss, senior vice president and director of sales & marketing at Cuttone & Co., said to IBTimes that day. The company hasn't done so since 2012.
That's why our experts laid out how to play Amazon stock in coming months...
How to Play Amazon Stock Right Now
Money Morning Defense & Tech Specialist Michael A. Robinson is a fan of Amazon's resourcefulness and product growth.
"These guys leave no stones unturned for the next dollar they can bring in," Robinson said earlier this year. "Amazon is constantly upselling, cross-selling, and looking for new products, and they're great at it. Once this franchise is built out, there are billions of dollars in cash flow that will fall to the bottom line."
In fact, Amazon knows that an added bonus of Local Register is that it will provide the company with crucial data on how U.S. consumers do their offline shopping.
In second-quarter earnings, Robinson noted that Amazon plans to spend more than $100 million on original video content in Q3, and that told him something about AMZN stock.
"The thing I look at most is operations and it looks to me like Amazon has entered a new build out phase," Robinson said in July. "I don't think they know how long it's going to take and that's why they didn't communicate that to Wall Street in earnings. When you come away from this, you have no sense of when this best e-commerce platform on earth, with its fabulous sales growth, is going to come together to create EPS that investors can count on for some period of time."
To that end, he recommends investors stay focused on revenue and growth, and not to let the lack of profits shake them - just be cautious.
"This is what growth investors have to deal with on a regular basis. Frequently, the next leg up means a few quarters of losses on a per share basis because it's expensive to ramp up," Robinson said.
This is a company that's all over the world, so when they want to ramp up it's a big, big undertaking."
Finding a great "safety play" is a good idea for investors in case U.S. stocks begin to sputter - or even stall. And this "20% catalyst" Money Morning's Executive Editor Bill Patalon has found could send shares of this company soaring...
- The Wall Street Journal: Mobile-Payments Startup Square Discusses Possible Sale