Amazon (AMZN -1.09%) is arguably one of the most well-known companies in the world, but that wasn’t always the case. The company was founded in 1994 as a simple online bookstore, but its mission quickly changed.
After adding music and video in 1997, founder and former chief executive officer Jeff Bezos decided to crowdsource the company’s next step. In a 2018 interview, Bezos shared the catalyst for its rapid product expansion. “I emailed a thousand random customers and asked them, ‘Apart from what we’re selling today, what would you like to see from us?'” The wide-ranging and varied responses inspired Bezos, who quickly decided, “We can. We can.” sell it all away.”
From humble beginnings, Amazon stock has soared a staggering 132,000%, making it the third-best performing stock in the last 30 years. That means a $10,000 investment in the company’s IPO today would be worth a cool $13 million. Even a more modest investment of $1,000 would have yielded about $1.3 million in profit.
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Unfortunately, Amazon’s current economic headwinds have been challenging. Digital shoppers have reined in spending amid historically high inflation and rising interest rates, making 2022 Amazon’s first unprofitable year in nearly a decade. Those factors weighed on the stock, which is down 47% from its peak.
But for long-term investors, there are still plenty of opportunities for Amazon.
The death of e-commerce is greatly exaggerated
Amazon now dominates the e-commerce industry that it helped pioneer. It’s the world’s largest digital retailer, taking an estimated 38% of the market — more than its closest 15 competitors combined, according to data compiled by Statista. Amazon is not only the largest e-commerce site, but also the second largest retailer, according to Deliotte’s Global Powers of Retailing 2023 report. In fact, Amazon is expected to overtake the market leader Walmart to become the #1 retailer by 2024, according to industry analyst firm Ascential.
Amazon’s e-commerce dominance has been fueled by relentless expansion, which includes continued investments in its logistics network and Fulfillment by Amazon, which helps the company expand the range of products in its same-day, 1-day and 2-day deliveries to increase further.
But for all the naysayers proclaiming the demise of digital retail, its growth is far from over. This year, the global e-commerce market is expected to grow to $6.3 trillion, up from $5.7 trillion in 2022, an increase of 10.4% — more than double the growth rate of total retail sales. Perhaps more importantly, e-commerce is a growing part of the market. In 2022, digital sales accounted for 19.7% of all retail sales, but that figure is projected to rise to 24% by 2026, according to data from market research firm Oberlo.
As the undisputed leader in e-commerce, Amazon is well positioned to continue increasing its share of this fast-growing market.
Amazon has its head in the clouds
Cloud computing is another area where Amazon pioneered, and it’s still the clear leader. According to research firm Canalys, Amazon Web Services (AWS) controlled 32% of the cloud infrastructure market in Q4 2022. That was almost as much as Microsoft azure and alphabet‘s Google Cloud combined, accounting for 23% and 10% respectively,
From an innovation perspective, AWS is unrivalled, at least according to IT research firms gardener, which named AWS a Leader in its 2022 Magic Quadrant for Cloud Infrastructure and Platform Services for the 12th consecutive year, making it the longest-running industry leader. The report stated, “AWS continues to have the greatest breadth and depth of capabilities of any vendor on the market.” It also cited the company’s “vibrant and thriving ecosystem,” which it describes as a “magnet” for partners.
Amazon’s leadership will serve the company well as the industry continues to grow. The global cloud computing market was valued at $484 billion in 2022 but is projected to grow to $1.39 trillion by 2030, at a compound annual growth rate of 14.1%, according to Grandview Research. This gives Amazon a long runway for growth. Additionally, AWS generated more than $80 billion in net sales in 2022, nearly 16% of Amazon’s total sales. The segment was by far the company’s most profitable, posting hefty operating margins of nearly 29%.
Digital advertising – the third mainstay of Amazon
Not content with just having two industry-leading companies, Amazon has quickly become a rising star in the digital advertising industry. The company’s ad tech prowess is undeniable as evidenced by its #3 position last year with 9% of the global digital advertising market. For context, it just follows Google and meta platforms, which control 29% and 11% of the market respectively. Perhaps more importantly, Amazon’s ads business continued to grow, as revenue rose 19% in the fourth quarter, even as its main rivals reported declines.
The global digital advertising market was valued at $602 billion in 2022, but is projected to grow to $876 billion by 2026, at about 10% annual growth, according to eMarketer. Additionally, digital ad spend is expected to grow to nearly 74% of all media ad spend, up from 66% last year. Amazon will likely grow faster, fueled by its online marketplace, streaming platform Fire TV, IMDB (its online movie database), Box Office Mojo (its theatrical release site), and Freevee (its homegrown ad-supported streaming service). Each of these outlets offers Amazon an opportunity to turn its burgeoning digital advertising business into an even stronger growth driver.
All this potential at a discount
Against the backdrop of this three-pronged growth platform, Amazon stock currently trades for less than twice sales — the very definition of a bargain — as most experts agree that a good price-to-sales multiple is between 1 and 2 times sales. Add to this its industry-leading positions in e-commerce and cloud computing, and its strong position in digital advertising, and it’s clear that Amazon stock is a steal.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Danny Vena has held positions at Alphabet, Amazon.com, Meta Platforms and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Meta Platforms, Microsoft, and Walmart. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
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