How Good Does Amazon's Prime Day Need To Be?

Few companies in the world can succeed in making up their own holiday to jolt sales. One of those companies is Amazon.com, Inc. AMZN whose annual "Prime Day" sale kickstarts Monday.

With the stock trading close to a $1-trillion valuation, the company may feel some pressure from investors to exceed already high expectations.

What Happened

Amazon showed in its most recent earnings report a slowdown in year-over-year revenue growth, falling below the 20% mark for the first time since 2015, The Wall Street Journal's Dan Gallagher reported. Current estimates call for 18% growth in the second quarter and 19% growth in the third quarter.

These figures seem to be "good enough" for investors, with the stock up more than 30% in 2019 alone, WSJ said.

Yet investors should be mindful that Amazon has plenty of expensive initiatives underway, including improvements to its delivery infrastructure and $700 million earmarked to retrain one-third of its staff.

The e-commerce company typically doesn't quantify useful data about Prime Day, nor does it disclose how many Prime members it has.

Cowen's John Blackledge estimates that 63 million U.S. households have a Prime membership, up 7% from last year. This suggests there is still plenty of room to grow its base, but it won't be cheap to do so. 

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Prime Day A 'Recruitment Vehicle'

Amazon likely views its Prime Day event as a "recruitment vehicle" to lure new shoppers to sign up for Prime and become part of its ecosystem, Gerald Storch, former Toys R Us chairman, told CNBC in an interview.

Amazon is likely to focus this year on deepening the relationship with consumers through multiple promotions across its "rapidly growing Amazon omniverse by using Prime Day as the lure."

While Amazon is expected to collect $6 billion in sales during the two-day sales event, it is unclear how much of these transactions are incremental sales that wouldn't have occurred otherwise, he said.

BofA: Competition Isn't 'Sitting Still'

Amazon will face competition from a handful of retailers both online and offline, Bank of America Merrill Lynch's Justin Post said in a note.

For example, Walmart Inc WMT will offer rival Alexa devices like Google Home Smart Speaker for $69 instead of $129. eBay Inc EBAY will host a "Crash Sale" with 50% off brands like Apple and Samsung and will introduce more discounts if Amazon's website crashes on Prime Day, the analyst said. 

Nevertheless, Prime Day is expected to be a "solid" event for Amazon, and the company can take advantage of the two days to test its free one-day delivery offer on more than 10 million products, Post said.

This could help "build optimism" that one-day shipping will serve as a growth catalyst in the back half of 2019, according to BofA. 

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Photo courtesy of Amazon.