2 Charts Show Why Amazon is the Next Trillion-Dollar Company
Could AMZN Stock Be the Next Trillion-Dollar Stock?
Investment maestro Warren Buffett was on CNBC and lamenting what could possibly be the biggest miss of his investment career. “Obviously, I should have bought it a long time ago,” said the billionaire investment guru. “It is one I missed big time.” Anybody would feel bitter about losing the golden opportunity of owning what’s touted to be the next trillion-dollar company. At least, that’s the idea you get from the Amazon stock chart.
“Generation Z” will always find it hard to swallow that tech behemoth Amazon.com, Inc. (NASDAQ:AMZN) first opened its doors as a modest online bookstore. To them, Amazon is the biggest e-commerce company in the world, killing traditional retailers (hint: Wal-Mart Stores Inc [NYSE:WMT], Target Corporation [NYSE:TGT]).
And it is the biggest cloud computing company, hurting long-established software companies (hint: Microsoft Corporation [NASDAQ:MSFT], Oracle Corporation [NYSE:ORCL], International Business Machines Corp. [NYSE:IBM]).
It is also the only retailer that owns its own planes, ships, drones, and trucks for delivery and is now keeping conventional delivery companies on their toes (hint: United Parcel Service, Inc. [NYSE:UPS], FedEx Corporation [NYSE:FDX]).
Believe it or not, it is also one of the most affordable hardware manufacturers that competes in quality with premium smartphones and tablets (hint: Apple Inc. [NASDAQ:AAPL], Google-parent Alphabet Inc [NASDAQ:GOOG]).
Wait, wait! Its streaming service that hosts Oscar-nominated original content is likewise the biggest threat to top streamers (hint: Netflix, Inc. [NASDAQ:NFLX], Hulu, LLC).
And the list goes on, and on, and on.
Amazon is omnipresent! It is everywhere and hurting everybody. For rivals, the writing is there on the wall: Amazon could easily become the first trillion-dollar company, beating Apple to the finish line in this final lap.
Sounds far-fetched? Okay, I know that the trillion-dollar mark is a long shot for an average company trading around $400.0 billion. But let’s be fair; Amazon is no average company, nor is AMZN stock. And I have reasons to back that claim.
For starters, no average company can boast a mind-boggling exponential growth rate comparable to Amazon’s. Secondly, Amazon’s competitive advantage is peculiar. I define what Buffett calls the “economic moat” of Amazon in just two words. Yes, two words!
He’s the man building rockets for space tourism to put us earthlings into space. No kidding!
But we know him better, not for Blue Origin, but for the stunning Amazonian (pun intended) empire that he single-handedly built from the ground up.
Bezos’ business mantra at Amazon has never been a secret. In fact, he has it written down for everybody to read in his company’s mission statement. It is something that oddly sets his company apart from all others in the race.
He aimed for Amazon to be a customer-centric company that could sell just about anything customers wanted. On a cursory look, nothing about that seems extraordinary. But wait until I tell you Bezos’ peculiar modus operandi to make this possible.
Think about this: what is the primary motive of any business? Maximizing profits, right? Not for Amazon! Bezos pushed that business motive to the back-burner and instead put his customers up front. How? By slicing down margins razor thin. That was the first half of his mission.
Bezos saw an opportunity in his competitors’ wider margins, who were keeping cost of sales low and selling high. But for Bezos, narrow margins became Amazon’s best defense against competition. By offering customers the cheapest alternative, Amazon effectively disrupted the brick-and-mortar retail industry.
For reference, Amazon lost an astounding $3.0 billion in just the first seven years of business. Back in the 1990s, those losses would have given any average businessman nightmares. But Bezos had a firm hand on the tiller, making this a part of his grand plan.
Long story short: Amazon didn’t make money for years and yet managed to become the world’s biggest “e-tailer”—all on the back of its stalwart customer base that gladly migrated from “bricks to clicks.” The biggest winners were, of course, the holders of Amazon stock.
Then came the second half of the mission—that is, to make available to customers anything they were looking for, so that they never returned empty-handed from Amazon. To that end, Bezos started getting his hands dirty in virtually anything for which he saw even the slightest of demand.
Putting it in Bezos’s words:
“If you decide that you’re going to do only the things you know are going to work, you’re going to leave a lot of opportunity on the table.”
These words underscore Amazon’s experimental ventures into consumer electronics, television streaming, same-day delivery logistics, artificial intelligence, augmented reality, drone technology, and so on and so forth.
In fact, the company has introduced roughly two new product lines to its platform every year for over a decade. And it is evident that there have been more successes than failures. This is exactly why its revenue chart looks like this—a rock-steady skyward ascension. No other retailer, I repeat, no other retailer boasts revenue growth like Amazon’s.
(Source: “Annual net revenue of Amazon from 2006 to 2016, by region (in billion U.S. dollars),” Statista, last accessed April 25, 2017.)
What’s more, even if you put all major retailers together, yet they can’t beat AMZN stock in valuation.
Why Amazon Could Be a Trillion-Dollar Company
It’s crystal clear that Amazon is now in the front rank. But where does it go from here? How does Amazon stock hit the one-trillion mark?
The answer to that can be found in its revenue breakdown—where a new business segment has emerged as a potential driver of its future growth.
Before getting to that, let’s first revisit its core business of e-commerce, where Amazon leads the pack. On average, Amazon has seen net sales grow between 20% and 25% in past quarters. If it maintains that growth, the company could easily cross $300.0 billion in annual retail revenue in the next five years.
Given the fact that e-commerce only accounts for 10% of total sales in the U.S., Amazon has more than enough room to grow its share.
Coming to its new segment—the cloud computing arm of Amazon called Amazon Web Services (AWS) is now gaining ground on Amazon’s revenue pie chart. This segment grew 47% in the last quarter alone and prior quarter growths likewise hovered around 50%. Even by conservative estimates, AWS annual revenue is expected to cross $50.0 billion in the next five years.
The reason behind its stratospheric rise is its dominance in the cloud market. AWS beats bigwigs like Microsoft, Google, and IBM in the race. Below is a chart that shows how Amazon is maintaining its top spot.
Amazon Stock Predictions: Should You Invest in AMZN Stock Right Now?
Now, if you are still wondering why Buffett regrets missing the boat on AMZN stock, then just take a quick glance at the AMZN stock price chart below. The stock, on average, gained a staggering 2,000% every 10 years since it began trading.
Chart courtesy of StockCharts.com
If you’ve read through my thesis above, you don’t have to be an experienced analyst to see where the stock is headed next. But if you still want me to say it in plain words, then I’m seeing it heading further up north in the years to come.
However, you must stay aware that we’re approaching the final showdown between Apple, Google, and Amazon, where each one is now gunning for digital supremacy. Each one of them is building its own ecosystem that’s vertically and horizontally integrated so that consumers never leave their platform. And while “iOS” and “Android” control the market with their operating systems, Amazon is creating its own niche of loyal customers that’s ever-growing.
In a nutshell, Amazon is growing like a weed and savvy investors may stand a chance of a second bite at this cherry if they act timely. I’m all for AMZN stock.