What the Bears Don’t Understand About Amazon.com, Inc.?
Amazon.com, Inc. (NASDAQ:AMZN) is one of the greatest investment stories of our time, but can it continue this incredible streak? AMZN stock skyrocketed by 1,695% in the last decade. Will the next decade be as profitable for owners of Amazon stock?
Obviously, there’s no easy route to answering this question. The future of AMZN stock is a hotly contested topic in investment circles. Although it’s rare to see analysts get into heated debates over anything (as we tend to be fairly calm people), analysts go nuts when it comes to Amazon.
The central point of contention is usually about the price for Amazon stock. Critics argue the share price is too high, considering the firm’s measly profit margins—that is if it even managed to turn a profit in that quarter. Under normal circumstances, a company that doesn’t deliver returns to shareholders would be gutted and left for dead.
So why does Amazon get a pass? What’s so special about it?
Those are the questions asked by the bears. If you’re not familiar with the nuance of Amazon, this narrative could be incredibly seductive. You could easily start to believe that all the big gains in AMZN stock are undeserved.
But I’m here to correct the record. Not only does Amazon deserve its past gains, but the company is in a position to deliver a heck of a lot more. This company is a growth machine, constantly investing its capital into new and successful enterprises.
Let me give you an example: Amazon began as an online retailer that facilitated the rise of e-commerce platforms. It was famous for taking razor-thin margins on products just to price out its competitors, a strategy that was extremely successful. Critics tend to focus on that part of Amazon’s story, but there’s a more important angle.
The company developed all sorts of technology to make its e-commerce platform possible. Amazon built an entire web of cutting-edge infrastructure and it opened a whole new range of opportunities. I know that sounds abstract, but it isn’t. (Source: “Jeff Bezos Owns the Web in More Ways Than You Think,” Wired, November 13, 2011.)
Amazon took those tools and turned them into “Amazon Web Services” (AWS), which is now the market leader for cloud computing services. If the name rings a bell, it’s because AWS is now the firm’s biggest profit center. AWS was solely responsible for pushing Amazon into the black last year.
And that’s just how Amazon rolls. It never leaves a single opportunity unexplored. The company simply plunges headfirst into new businesses, dominating the competition on both price and efficiency. It bulldozes the competition and never stops growing.
That’s why Amazon stock is such a valuable asset. Every dollar the company makes gets put into another business, which keeps the business expanding and its share price surging.
It’s not a cookie-cutter business model, I’ll grant you that, but that’s precisely what makes Amazon great. The company offers unique value to shareholders, which makes AMZN stock a valuable asset to own.