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Can This Tiny TSX Stock Compete With Amazon?

Image source: Getty Images (NASDAQ:AMZN) is one of the largest companies in history, with a market cap of more than $1 trillion. It’s difficult to imagine another company truly compete with Amazon, yet the business is now so large that it’s possible for smaller competitors to fight for pieces of the pie.

One of Amazon’s biggest bottlenecks has been distribution. The company has invested billions in recent years to shore up this weakness. These initiatives have become more important with scale, but also because expectations for shipping times have changed.

Today, online shoppers expect free and guaranteed two-day delivery thanks to Amazon Prime. Expectations for one-day shipping will soon become the norm. Shifting expectations for delivery speed opens up a new door to compete with Amazon.

This is a game changer

Last year, Amazon took the bold step of directly investing millions of dollars into Cargojet Inc (TSX:CJT). Cargojet is the largest overnight shipper in Canada.

Unless Amazon wanted to replicate the business model on its own, investing billions of dollars along the way, its path to rapid shipping in Canada relied on Cargojet. Amazon executives understood this, which is why they took a direct stake in the business to secure their seat at the table.

To compete with Amazon, companies don’t need to become the next e-commerce giant. Instead, they can focus on more niche services like rapid shipping. Cargojet is a perfect example of this. If Amazon built its own network, it would only end up competing directly with Cargojet’s existing infrastructure and services, which are regarded as some of the best in the world.

This isn’t the first time Amazon has invested in a cargo transport company.

“Amazon leases aircraft in the U.S. from Air Transport Services Group and Atlas Air Worldwide for its Amazon Air fleet,” wrote Fool contributor Rich Duprey. “But after starting out with a small ownership position in the U.S. air freight carriers, it now owns a third or more of their stock.”

The most lucrative way to compete with Amazon is to build a rapid-delivery network. To reduce competition, the company has been taking equity stakes in the business. One tiny TSX stock could be next.

This will compete with Amazon

When we talk about rapid delivery systems, it doesn’t get much faster than via drone. Amazon itself has invested heavily in this technology. But as the Cargojet deal suggests, it may wait until a domestic business perfects the process first. Then, it will buy ownership to align incentives.

The leading drone delivery service in Canada is Drone Delivery Canada Corp (TSX:FLT). Its business is currently focused on remote Canadian citizens and businesses, which place a high priority on speed.

The company can deliver a new mining part in hours, not weeks. Emergency blood supplies to rural hospitals are another example where customers will pay a steep premium for speed.

Today, there are more than 100,000 Canadians living in remote areas, not to mention hundreds of businesses located far from a major highway. This segment of the market is where Drone Delivery Canada is perfecting its business model. Eventually, it should compete with Amazon directly, with drone delivery services throughout Canada.

In recent weeks, the company has made big progress is expanding its capabilities. On April 22, the company received the second patent for its proprietary FLYTE management platform.

The week before, it unveiled plans to begin testing its Condor drone, which can lift 180 kilograms and travel 200 kilometres at 120 kilometres per hour. Its multi-package payload compartment can carry 20 cubic feet of cargo, a perfect match for Amazon’s delivery needs.

If history is any indication, Amazon will look to acquire the company if it is successful. While that possibility is still a few years off, with a valuation of just $100 million, this could be the time to take a long-term bet on a high-growth stock.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and CARGOJET INC and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon.

Fool contributor Ryan Vanzo has no position in any stocks mentioned.

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