Amazon (AMZN -1.09%) is perhaps one of the most recognizable companies in the world, but that wasn’t always the case. The company was founded as a simple online bookstore in 1994, but its mission quickly changed.
After adding music and videos in 1997, founder and former CEO Jeff Bezos decided to draw attention to the company’s next move. In a 2018 interview, Bezos shared the catalyst for the rapid product expansion. “I emailed a thousand randomly selected customers and asked them, ‘in addition to the things we sell today, what would you like to see us sell?'” The wide-ranging and varied responses inspired Bezos, who quickly decided that “we can sell something this way.”
From humble beginnings, Amazon stock has soared a staggering 132,000%, making it the third-best performing stock of the past 30 years. That means a $10,000 investment at its IPO would be worth a cool $13 million today. Even a more modest investment of $1,000 would yield a profit of about $1.3 million.
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Unfortunately, the current economic difficulties are challenging for Amazon. Digital shoppers have curbed spending in the face of historically high inflation and rising interest rates, making 2022 Amazon’s first unprofitable year in nearly a decade. Those factors have punished the stock, which is down 47% from its peak.
Still, for investors with a long-term perspective, Amazon still has plenty of opportunity.
The death of e-commerce has been greatly exaggerated
Amazon now dominates the e-commerce industry it helped start. It is the world’s largest digital retailer, capturing around 38% of the market – more than the next 15 competitors combined – according to data collected by Statista. Amazon is not only the largest e-commerce site, but also the second largest retaileraccording to Deliotte’s Global Retail Powers Report 2023. In fact, Amazon is expected to overtake the market leader Walmart to become the No. 1 retailer by 2024, according to analyst firm Ascential.
Amazon’s e-commerce dominance has been fueled by relentless expansion, which has included continued investment in its logistics network and fulfillment by Amazon, helping the company continue to increase product selection in its one-day, one-day and two-day deliveries.
Yet, for all the naysayers declaring the decline 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 twice the growth rate of total retail sales. Perhaps more importantly, e-commerce represents a growing part of the market. In 2022, digital sales accounted for 19.7% of total retail sales, but are expected to grow to 24% by 2026, according to data compiled by market research firm Oberlo.
As the undisputed leader in e-commerce, Amazon is well positioned to continue to grow its share of this fast-growing market.
Amazon’s head is in the clouds
Cloud computing is another area in which Amazon pioneered, and is still the clear leader. Amazon Web Services (AWS) controlled 32% of the cloud infrastructure market in the fourth quarter of 2022, according to research firm Canalys. That was almost as much Microsoft Azure and AlphabetGoogle Cloud combined, accounting for 23% and 10% respectively,
In terms of innovation, AWS has no equal, at least according to the IT research firm Gartner, which named AWS a leader in its 2022 Cloud Infrastructure and Platform Services Magic Quadrant for the 12th year in a row, making it the industry’s longest-standing leader. The report notes that “AWS continues to have the greatest breadth and depth of capabilities of any vendor on the market.” He also cited the company’s “vibrant and thriving ecosystem,” which he calls a “magnet” for partners.
Amazon’s leadership role 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 expected to grow to $1.39 trillion by 2030, a CAGR of 14.1%, according to Grandview Research. This gives Amazon a long runway for growth. In addition, AWS generated net sales of more than $80 billion in 2022, nearly 16% of Amazon’s total revenue. The segment was the most profitable for the company, generating juicy operating margins of nearly 29%.
Digital advertising – Amazon’s third leg
Not content with just two industry-leading businesses, Amazon has quickly become a rising star in the digital advertising industry. The company’s track record in ad tech is undeniable, as evidenced by its No. 3 position last year, with 9% of the global digital ad market. For context, only Google follows and Meta platforms, which control 29% and 11% of the market respectively. Perhaps more importantly, Amazon’s advertising 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 climb to $876 billion by 2026, representing roughly 10% annual growth, according to eMarketer. Additionally, digital ad spending is expected to grow to nearly 74% of all media ad spending, up from 66% last year. Amazon is likely to grow faster, fueled by its online marketplace, its Fire TV streaming platform, IMDB (its online movie database), Box Office Mojo (its box office submission site) and Freevee (its own ad-supported streaming). Each of these outlets provides Amazon with an opportunity to turn its nascent digital advertising business into an even stronger engine of growth.
All that potential at a discount
With this three-pronged growth platform as a backdrop, Amazon stock is currently trading at less of 2 times sales — the very definition of a bargain — as most experts agree that a good price-to-sales ratio is between 1 and 2. Add to that 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 screaming buy.
Suzanne Frey, CEO of Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s board of directors. Randy Zuckerberg, former Facebook CMO and spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Danny Vena holds 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.