uploads/2015/07/Amazon-NA-operating-margins2.png

Jet.com or Amazon Prime: Which Membership Is More Profitable?

By

Updated

Jet.com aims to achieve a user base of 15 million

Marc Lore founded Jet.com. He has plans to carry out a massive marketing campaign in the coming months to win customers from Amazon (AMZN). According to a report from the Wall Street Journal, the startup expects to have 15 million customers by 2020. This would generate revenue of around $750 million.

Article continues below advertisement

$50 membership

Jet.com will charge its customers an annual fee of $50 that will include a three-month free trial. The e-commerce platform then will sell goods at essentially no markup. The annual membership fee will be Jet.com’s sole source of profit. It’s crucial for Jet.com to lure members from Amazon.com and other competitors. The company plans to capitalize on this service to keep the customers loyal.

Which membership is more profitable?

Although the Jet.com membership fee is cheaper than Amazon Prime at $99 per year, Amazon customers love the Prime membership service. They will be less likely to shift to an alternative. The Amazon Prime program has been responsible for driving Amazon’s North American 1Q15 operating margins.

As members, Amazon customers get free delivery of the goods they order from Amazon. Also, customers get free access to select videos through a video streaming service. This strategy gives Amazon an edge over eBay (EBAY). It doesn’t offer this kind of program.

Operating margins

The above chart shows that with the exception of 4Q14, 2Q15 operating margins were Amazon’s best in North America over the last few quarters.

For more on this topic, read Amazon manages to surprise investors with its operating profits. In this part, we discussed how online sales by Amazon and other retailers—including Walmart (WMT) and Target (TGT)—benefited immensely from the Thanksgiving holiday.

Amazon also has no minimum fee for free shipping. In contrast, Jet.com charges $35 minimum fee for free shipping. As a result, Jet.com could be beneficial for bulk purchases and longer shipping times. Amazon is best suited for small orders and fast delivery.

You can get exposure to Amazon by investing in the Consumer Discretionary Select Sector SPDR Fund (XLY). It has 6.10% exposure to the company.

Advertisement

More From Market Realist