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Prime Now Seen Helping Amazon Gain Vs. Retailers Wal-Mart, Target

With the Amazon.com ( AMZN ) one-hour delivery app Prime Now , it’s possible to order a big-screen television on New Year’s day from a mobile phone and still catch that day’s football bowl games. This capability is going to help Amazon destroy the advantage that Wal-Mart ( WMT ), Target ( TGT ) and others hope to gain by offering online orders, in-store pickup and stores as warehouses for online deliveries, according to a Wells Fargo analyst. Though ordering a TV from a smartphone and having it delivered immediately is not a typical use of Prime Now, Amazon’s app has caught on with consumers. The Seattle-based giant has brought the service to 26 markets in just over a year. It’s part of the company’s move to dominate “Need It Now” shopping, Wells Fargo analyst Matt Nemer wrote in a research note late Monday. Prime Now members must be members of the company’s Amazon Prime loyalty program, which costs $99 a year. Amazon Prime includes free two-day shipping, free video streaming and a host of other perks. Those perks include Prime Now, which offers free two-hour shipping of roughly 30,000 products in markets where it’s available, and one-hour shipping for $7.99 per delivery. Amazon’s push may eliminate a key advantage of physical retailers — the last-mile convenience of being able to get something immediately. As that advantage disappears, so do other advantages touted by brick-and-mortar stores, such as the ability to pick up an online order quickly at your local store. Prime Now is gaining even in food delivery, Nemer says. He says that Prime Now has a better app for Apple ( AAPL ) iOS users than Google Express, the Alphabet ( GOOGL ) food delivery service. Wal-Mart, Target and other retailers have struggled to compete with Amazon’s growth rate and innovation — especially around customer loyalty programs. Target recently launched its Red Card loyalty program. Amazon stock was up nearly 1%, near 567, in afternoon trading on the stock market today. In the research note, Nemer says that Prime Now, though not currently profitable, helps Amazon retain Prime member loyalty and will, with scale, become profitable. Prime also gives the company opportunities to experiment — for example, selling products in smaller pack sizes or offering high-turnaround fresh groceries that would be impossible to sell on Amazon.com. Nemer says that Amazon’s delivery of local food items “suggests” that it may compete with food-delivery platforms like GrubHub ( GRUB ) and privately held Uber’s UberEats. It’s also possible, Nemer says, that Amazon could begin to eat into convenience store market share. If Amazon can deliver small-pack sizes for lower prices with free delivery, convenience stores could have trouble competing, he says.

Amazon Primes Pump, Hikes Minimum Free Shipping For Non-Subscribers

Amazon.com ( AMZN ) shipping got more expensive Monday, as the company announced it was raising its free shipping minimum 40% to $49. The move, of course, only pertains to non-subscribers of its Amazon Prime loyalty program, since those subscribers get free shipping on any order. Amazon’s latest move is likely intended to drive more Prime subscription growth and also cut down on shipping costs. Amazon stock rose 4.6% to 559.50 on the stock market today , moving back above its 200-day moving average for the first time since plunging below that mark on Feb. 3. Rival Wal-Mart ( WMT ) has a $50 threshold for free shipping. E-tail startup Jet.com uses $35 as its minimum, while Target ( TGT ) has a $25 minimum. Wal-Mart stock rose 1.5% on Monday while Target edged up 0.2%. Amazon’s shipping costs have been ballooning as the company offers increasing rapid delivery times — including one-hour delivery in certain markets via Amazon Prime Now. Those costs rose 37% year-over-year in Q4, to $4.7 billion. Rumors continue to swirl about the firm’s long-term plans for its shipping program, as investors and analysts speculate that Amazon is interested in competing with established delivery companies such as UPS ( UPS ) and FedEx ( FDX ). Internal documents seen by Bloomberg seemingly support that theory. And, there have been reports of Amazon getting into the ocean freight business — which one observers said could generate upward of $100 million in free cash flow — as well as leasing cargo jets and making a large purchase of trucks to haul packages between its fulfillment centers. The documents seen by Bloomberg suggest Amazon is gearing up to compete more with China e-com leader Alibaba ( BABA ). Besides delivery costs, Amazon has spent billions of dollars on its fulfillment and sortation centers, the last step in the delivery process. Wells Fargo analyst Matt Nemer says Amazon.com captured 51% of all retail growth in Q4 2015 . Amazon’s Prime loyalty program offers free two-day shipping, as well as free streaming audio and video, among other perks. Analysts in general peg Amazon’s Prime customer count near 40 million, with some estimates coming in as high as 50 million. Prime members, on average, spend about twice as much on Amazon.com than regular shoppers. Prime members accounted for 57% of Amazon’s North American sales in Q4, and Prime members spend about 12% more every year, according to ITG Investment Research analyst Steve Weinstein. Nemer has told IBD that Prime is the biggest reason for Amazon’s growth, which during the past two quarters has exceeded 20%.

Allergan Q4 Earnings Beat, But M&A Dance Card Challenges Comps

Big Pharma player Allergan unveiled what it expects to be its final full year of operation as an independent drug maker before merging into Pfizer, reporting fourth-quarter 2015 earnings that beat expectations and revenue that barely topped Wall Street estimates. Before the market open, Allergan ( AGN ) said non-GAAP earnings rose 33% to $3.41 per share on a revenue gain of 74% to $4.2 billion. Both metrics exclude discontinuing operations, notably Allergan’s Global Generics business that it agreed to sell in July. The Global Generics unit carries the old Actavis name and generic drugs lines of business. Actavis had purchased specialty drug and Botox maker Allergan, a deal that closed in March, and renamed itself Allergan. Shares jumped 2.8% to 283.07 in early trading in the stock market today . Allergan had closed down 0.8% on Friday to 275.75, 18% off its all-time high of 340.34, touched July 29. Pfizer ( PFE ) was up 1.4% to 29.93 in early trading Monday, 17% below a nearly 12-year high set July 31 at 36.46. Analysts polled by Thomson Reuters expected Q4 EPS of $3.34 minus items, down 14.6% from $3.91 in 2014, on revenue of $4.192 billion, up 3.4% from Q4 2014’s $4.057 billion, although analyst numbers apparently were not uniformly adjusted for discontinuing operations. Allergan presented the pro forma year-earlier numbers as adjusted EPS of $2.57 and revenue of $2.4 billion. For the full year, Allergan said non-GAAP EPS from continuing operations increased 78% to $13.43 on revenue from continuing operations up 124% to $15.07 billion. With varying adjustments, for the full 2015 analysts expected $15.43 per share minus items, up 66% from $9.29 in 2014, on sales of $18.206 billion, up 117% from $8.380 billion in 2014. Allergan reported a Q4 GAAP loss from continuing operations of $2.13 per share, compared to a GAAP loss from continuing operations of $4.48 per share in the prior-year period. It said full GAAP results were impacted by amortization and acquisition expenses, license agreements, impairments, and severance related mainly to the acquisition of Allergan on March 17, and Kythera on Oct. 1, as well as research and development expenses resulting from the purchase of R&D assets of Mimetogen. Allergan had declined to freshen its guidance upon issuing its Q3 performance Nov. 4, citing early merger discussions with Pfizer back then. But Monday it guided 2016 revenue to about $17 billion, with “no material changes to gross margins” from current levels and a non-GAAP tax rate “normalized” to about 14%. Management didn’t specify EPS for the year nor offer Q1 guidance other than suggesting Q1 performance would be the weakest of the year and fall below Q4 2015 results. Allergan’s 2015 results were an analyst’s challenge, influenced by its extraordinary M&A dance card. In Q3, it began discontinuing operations of the renamed Actavis generic lines, which it agreed to sell to Teva Pharmaceutical ( TEVA ) in July for $40 billion. By Nov. 23, Allergan’s board agreed to Pfizer’s offer of 11.3 Pfizer shares for each Allergan share, then valuing Allergan at $363.63 a share, or $160 billion for the entire deal, expected to take nine months to close. CEO Brent Saunders told analysts in a conference call following the Q4 earnings release that he still expects the Pfizer buyout to close in the second half of 2016. It would be the second-largest acquisition ever, after the sale of Vodafone AirTouch in 1999 to Mannesmann for $202 billion. Dell’s October offer to buy EMC ( EMC ) is valued at $67 billion. The Pfizer acquisition of Allergan is another in a thinning number of tax inversion deals that allow American companies to domicile in Ireland, Allergan’s home base, where the buyer may enjoy a lower tax base. The Obama administration has criticized the practice and thrown up speed bumps, if not road blocks. On Feb. 8, Pfizer said it plans to reorganize its two broad lines of business into three after the merger with Allergan is complete. Allergan CFO Tessa Hilado told analysts that debt stood at $42.7 billion on Dec. 31 and that $8 billion would be paid down after the close of the Teva sale. She put revenue from top-seller Botox at $656 million in Q4, with eye drug Restasis at $365 million, and Namenda XR at $190 million. She said the CVS ( CVS ) purchase of Target ( TGT ) pharmacies “had an effect in Q4” on revenue, but that it didn’t and wouldn’t impact earnings.