Amazon (NASDAQ: AMZN) achieved staggering revenue of $ 443 billion on a 12-month basis for the second quarter. The e-commerce giant has growing activities in areas as diverse as transportation, advertising, cloud services, and entertainment – and that’s just a brief look at the surface.
If I had to put all of my available cash into one stock, I can’t think of a better tool to protect and grow that money than Amazon. It probably has as big a competitive moat as any other company in the world, and if we look at where the company stood seven years ago compared to today, there’s a good chance Amazon’s moat will keep growing for the next decade.
The Amazon flywheel shifts to full speed
Amazon is still primarily an online retail company. Online store sales accounted for 51% of total Amazon sales in 2020, but about half of Amazon’s sales growth over the past seven years came from non-retail sources that generated very little sales in 2014.
Higher margin sales from non-retail categories – such as Third Party Fees, Prime Subscriptions, Other (Advertising), and Amazon Web Services (AWS) – generated 45% of total Amazon sales in 2020 compared to 23% in 2014. Simultaneously with that Increase has increased Amazon’s profitability, which should continue to improve as management continues to invest in these growth drivers.
Amazon seems to have plenty of leeway to keep growing these smaller but more profitable businesses. For example, during the Q2 earnings conference call, CFO Brian Olsavsky said that Amazon’s advertising business is “innovating in no time, introducing over 40 new features and self-service capabilities during the quarter for sellers, businesses and make authors easier ”. to grow their business by helping customers discover their brands and products. ”
Amazon reports its advertising revenue in the “Other” category, which rose 83% year over year in the second quarter.
Of course, things like advertising and third-party services are only there because of the hundreds of millions of customers who shop on Amazon. While Amazon last reported more than 200 million Prime subscribers earlier this year, the actual global customer base is likely to be at least twice that. One analyst estimates that there are likely up to 600 million Amazon customers in total, but it is these Prime members who really widen Amazon’s competitive gap.
Amazon currently has an enormously powerful flywheel. It’s all about the company’s wide range of choices, retail services, physical stores, third-party sellers, smart home products (Echo and Alexa), and additional Prime perks like streaming and personalized clothing styling (Personal Shopper by Prime).
The most exciting thing is that Prime memberships are still growing: Amazon reported that it has added 50 million new members since the beginning of 2020. This prompts Amazon to continue investing in infrastructure and technology to meet demand. On the basis of the last twelve months, spending on investments and finance leasing increased by 74% compared to the previous year compared to the previous period of the last twelve months.
Amazon can grow for a long time
Amazon is a big company, but its $ 4.9 trillion global e-commerce market is still growing faster than brick and mortar retail. The retail side of Amazon should be able to grow over many years. This should boost the profit margin even further as the growth in the retail business will continue to attract more advertisers and third-party sellers looking to sell their products in front of a growing number of Prime buyers.
With the addition of Amazon’s rapidly growing cloud services business, to which AWS contributes most of the company’s operating profit, growth investors can kill many birds with one stone. Amazon is a great investment that I want to keep for a long time.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.