When it comes to growth potential, few companies can match that of Amazon.com, Inc. (NASDAQ:AMZN). Investors liked that, rewarding AMZN stock with a 117.8% return in 2015. The question now is this: will Amazon’s growth continue? And will investors warm up to Amazon stock again?
The answer is “yes” to both. Here’s why…
AMZN Is Dominating E-Commerce
If you think that the king of the hill can only go down, think again. In the online retail business, Amazon is the undisputed leader. But what makes Amazon special is that despite being a behemoth, the company is able to grow at a much faster rate than its competitors.
In 2015, Amazon increased its net sales by 26% on a constant currency basis. How did its competitor eBay Inc (NASDAQ:EBAY) do? Well, the e-commerce company only managed to grow its revenue by five percent on a constant currency basis. (Source: “Amazon.com Announces Fourth Quarter Sales up 22% to $35.7 Billion,” Amazon.com, Inc., January 28, 2016.) Note that Amazon’s revenue was already many times bigger than eBay’s, so the growth difference in absolute terms would be even greater. (Source: “eBay Inc. Reports Fourth Quarter and Full Year 2015 Results,” eBay Inc., January 27, 2016.)
Some might argue that while eBay is no longer a threat, companies in the traditional retail business might be expanding their online presence. How is that going? So far, not so well.
Take Wal-Mart Stores, Inc. (NYSE:WMT) as an example. The retail giant has been investing heavily to expand its online presence. In the most recent quarter, Walmart increased its e-commerce sales by about eight percent on a constant currency basis. So again, the company grew much slower than Amazon, and Walmart’s online presence was also much smaller to begin with. (Source: “Q4 FY16 Press Release,” Wal-Mart Stores, Inc., February 18, 2016.)
Note that the e-commerce industry is expected to see continued strong growth in the next few years. If Amazon can continue to outgrow its competitors, it would have an even bigger share of an even larger pie.
Other than its core e-commerce business, Amazon could benefit from growth in cloud computing. In fact, “Amazon Web Services” (AWS), the company’s cloud-computing arm, is already a fast-growing and profitable segment.
In 2015, AWS’ net sales increased 69.8% from the previous year to $7.88 billion. The segment also generated $1.86 billion in operating income, nearly triple the amount in 2014. (Source: “Amazon.com Announces Fourth Quarter Sales up 22% to $35.7 Billion,” Amazon.com, Inc., January 28, 2016.)
Going forward, AWS is going to benefit from the next big thing—the “Internet of Things” (IoT). Instead of focusing only on making IoT devices, the company has launched an IoT platform: AWS IoT. The platform will be able to support billions of devices and trillions of messages.
Amazon is not satisfied with just being the leader in e-commerce. It wants to take over the logistics business as well.
Earlier this month, Bloomberg dug up an old report from Amazon. The report outlined an aggressive expansion plan for “Fulfillment By Amazon” (FBA), which provides storage, packaging, and shipping for vendors selling products on Amazon. (Source: “Amazon Building Global Delivery Business to Take on Alibaba,” Bloomberg, February 9, 2016.)
The report suggested that Amazon would build a delivery network that controls the flow of goods around the globe. In fact, the company might have already started doing so.
In December, it was reported that Amazon is considering leasing 20 Boeing “767” freighter jets and buying thousands of truck trailers. (Source: “Amazon Said to Mull Leasing Planes to Control Delivery Chain,” Bloomberg, December 18, 2015.) Last month, Amazon China was reported to have registered as an ocean freight forwarder in the U.S. (Source: “Introducing Ocean Freight by Amazon: Ecommerce Giant Has Registered to Provide Ocean Freight Services,” Flexport Blog, last accessed February 9, 2016.)
The Bottom Line on AMZN Stock
All of this indicates that Amazon is building its own global logistics service, which according to Colin Sebastian at Robert W. Baird & Co., is another $400-billion business for Amazon.
Simply put, Amazon is firing on all cylinders. With all that growth potential, AMZN stock might be able to attract even more investors despite its hefty price tag.