Amazon‘s (AMZN 1.74%) Stock went public in May 1997, so that year marked its 25th anniversary as a public company. It was a pioneer of online sales back then, and while e-commerce is still the core of its business, it has expanded into other markets and has become one of the largest companies in the world.
Towards the end of 2022, Amazon stock is down 50% amid the broad tech sector sell-off year-to-date, but every investor who bought and held the stock in its initial public offering (IPO) is still sitting on astronomical gains.
Let’s take a close look at how much they’ve been rewarded so far, and consider where Amazon stock could go next.
E-commerce, cloud services, streaming and advertising
That summarizes the list of core businesses that bring significant revenue to the organization. But it doesn’t capture other emerging areas that Amazon has entered. One of them is manufacturing electric vehicles through its stake in an emerging manufacturer Rivian Automotive. Amazon was originally a Rivian customer before deciding to own a piece of one of the fast-growing electric car industries.
The point is, Amazon’s market valuation has historically exceeded $1.7 trillion, and that’s not happening at a company that doesn’t have an insatiable appetite for growth and expansion.
E-commerce still accounts for 84% of the company’s total sales. In second place is Amazon Web Services (AWS), which now leads the entire cloud computing industry by revenue and volume of solutions. The cloud is an increasingly important technology because it enables companies to migrate their operations and their customer touchpoints online. Whether these businesses need basic file storage or advanced artificial intelligence tools, AWS has them covered, and this could represent a $1.5 trillion annual opportunity by the end of the decade.
During 2021, Amazon began reporting ad revenue as a standalone line item (it was previously included in the e-commerce category). It turns out the ads segment is a financial powerhouse, generating $35.8 billion in revenue over the last four quarters, which was even more revenue than alphabet‘s YouTube – the largest video streaming platform in the world.
Amazon’s flagship e-commerce site gets 2.6 billion hits per month, so trying to market a product to consumers is an advertiser’s dream. But the company has several other potential ways to bring in more ad dollars. For example, its video streaming service Prime entered the world of live sports by acquiring the rights to the NFL’s Thursday Night Football. Over time, advertising could become a powerful revenue driver for Amazon, especially since the company posted a whopping 30% year-over-year growth in the third quarter alone.
Amazon is having a tough year, but focus on the long-term
Because Amazon derives the bulk of its revenue from consumers, the company has been hurt by this year’s high inflation and rising interest rates, which have left household finances strained. Amazon’s total revenue this year is expected to be $510 billion, which would represent growth of just 8.6%.
But there is good news. CPI data over the past six months suggests that US inflation peaked in June, so 2023 could be far more benign for the e-commerce industry.
Nevertheless, investors should really focus on the long term. The chart below makes that clear — Amazon’s revenue was just $147 million in 1997, the year it went public, and the growth since then has been remarkable.
Here’s how much a $10,000 investment in Amazon’s IPO would be worth right now
On May 15, 1997, Amazon went public at $18 a share. Over the past 25 years, management has elected to execute several stock splits to curb the rising share price. This helped smaller investors buy into the company before stock buying became more or less ubiquitous. Below is a list of these splits:
- 2-to-1 split on June 2, 1998;
- 3-to-1 split on January 5, 1999;
- 2-to-1 split on September 1, 1999;
- 20-1 split on June 3, 2022.
Account for these splits, and Amazon’s IPO price of $18 per share would be adjusted to $0.075 per share. With Amazon closing Wednesday’s trading at $86.77 a share, these early investors would be sitting on a staggering 115,933% gain.
What does that mean in dollars? A $10,000 investment in Amazon’s IPO would be worth a whopping $11.5 million today.
That equates to compound annual growth of 31.7%, which is five times the benchmark compound annual return S&P500 index in the same period. In layman’s terms, Amazon’s market value growth has been five times the growth of the overall market every year for the past 25 years!
Could Amazon stock continue to outperform the market over the next decade (and beyond)? That’s likely because the company has its fingers in so many transformative industries and is still expanding. With the stock down 49% in 2022, this could be an excellent opportunity to buy for the long term.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Amazon.com. The Motley Fool has a disclosure policy.
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