Why Newegg Commerce Stock Just Doubled in a Day


What happened

For the second day in a row, the stock of Newegg (NASDAQ:NEGG) is soaring.

Yesterday, shares of the online consumer electronics retailer and recent IPO jumped as much as 42% on news that Newegg was holding a sale of hard-to-find NVIDIA GeForce RTX graphics cards — sure to be popular with buyers. Today, the news is that Newegg has launched a new business venture, offering professional PC assembly to customers who design their own computers on the Newegg PC Builder. And that has already sent its stock up 96.3% through 10:25 a.m. EDT.  

Excited gamer playing on a PC

Image source: Getty Images.

So what

Newegg already has an in-house computer assembly service, which it says it will now leverage “to build and deliver fully assembled computers significantly faster than other competitive [build-to-order] offerings” from other companies. What’s different now, the company says, is that it will be adding “more perks and options” to what it sells, including laser engraving, to further personalize customers’ builds.

And instead of just selling specific parts to buyers who want to build their PCs themselves, Newegg PC Builder will now also be building machines in-house, and shipping them fully assembled.

Now what

That sounds like good news for customers. Now here’s why it might be great news for the company: According to management, Newegg PC Builder will target customers “who refuse to compromise on quality and who want their expertly built computers delivered more quickly than any other BTO service.”

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Translated into dollars and cents, this implies the company is marketing to customers for whom price is no object (or at least not the most important object) and who may therefore be willing to pay up for quality and speed of service. And that will fatten Newegg’s profit margins in the process.

For a stock that’s been eking out a living on 1.4% net profit margins up till now (for comparison, Amazon gets 6.4%), the increase in profitability from this new service could be dramatic.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. 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.

View more information: https://www.fool.com/investing/2021/07/07/why-newegg-commerce-stock-just-doubled-in-a-day/

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