By almost any metric you can think of, online sales leader Amazon.com (AMZN 0.01%) was enormously successful in 2018. Even after the recent market correction, Amazon stock has gained more than 40% year to date as of this writing, significantly higher than the break-even performance managed by the broader market, as represented by the S&P 500.
Amazon has not only been making headway in its existing markets, but the behemoth also continues to expand into new areas, making good on one of CEO Jeff Bezos' most oft-cited quotes, "Your margin is my opportunity." Let's examine the company's year so far, and look at some of the massive untapped opportunities.
When it comes to digital sales, the company is a juggernaut. For the nine months ended Sept. 30, it generated more than $160 billion in total net sales, a 37% increase versus the prior-year period. If that trend continues, Amazon orders are expected to account for nearly half of online purchases in the United States by the end of 2018. These victories carried down to the bottom line, as net income came in at $7.05 billion, up an incredible 500% compared with the year-ago period.
Much of Amazon's overall business success stems from the company's domination of cloud computing. Amazon Web Services (AWS) grew revenue to $18.23 billion, up 48% year over year through the first three quarters, and the unit's operating income climbed 71% to $5.1 billion.
Financial metrics aren't the only area where Amazon has posted impressive results. For the first time, Amazon divulged the subscriber numbers for its enormously successful Prime program. In the company's 2017 shareholder letter, Bezos said, "13 years post-launch, we have exceeded 100 million paid Prime members globally." This is an important benchmark, as Prime members are the company's most lucrative customers, spending $1,400 per year, on average -- more than twice the $600 spent by those who aren't members.
The company's surge is likely to continue. In the wake of its recent holiday sale, Amazon reported that the five-day shopping event that began with Thanksgiving and ended with Cyber Monday was a "record-breaking holiday shopping weekend," and went on to say that Cyber Monday was "once again the single biggest shopping day in the company's history."
Big opportunities remain
Success in the company's existing businesses would be impressive enough, but Amazon continues to embark on new opportunities and expand its reach.
A great example is the company's business-to-business (B2B) market. Amazon announced earlier this year that its B2B commerce platform had already topped $10 billion in annual sales. In a blog post, the company said Amazon Business was already connecting millions of business customer and sellers, including 55 of the Fortune 100 companies, 80 of the 100 largest-enrollment education organizations, and more than half the 100 biggest hospitals -- all this from a business the company debuted less than four years ago.
Advertising is another area that has quietly become one of Amazon's fastest growing segments. The company recently emerged as the third-largest digital ad seller in the U.S., according to data by eMarketer. Its 4.1% market share may not seem all that impressive, but ad sales were up 123% year over year in the last quarter. Considering its base of existing digital customers, its video platforms -- such as Prime Video and Twitch -- and plans to launch an ad-supported streaming service via its IMDb subsidiary, the potential for significant growth in advertising remains.
The online grocery business is also a focus. The company's e-commerce share of food and beverage sales is expected to reach about 31% by the end of 2018. Amazon became a major force in the grocery market with its 2017 purchase of Whole Foods, and the company continues to push the boundaries on delivery options. It announced earlier this year that it would offer free two-hour grocery delivery from Whole Foods stores on any orders of $35 or more to Prime members. This service, part of Prime Now delivery, is available in more than 60 U.S. cities and is still expanding.
For all of Amazon's strength in cloud computing, some believe this is just the beginning. After attending Amazon's recent AWS summit and crunching the numbers, Jefferies & Company analyst Brent Thill believes that the cloud computing segment could triple over the coming five years, topping $60 billion in annual sales by 2022.
Success brings heightened scrutiny
For all its successes and opportunities, Amazon isn't without challenges. In light of its control over e-commerce, there have been calls to rethink the definition of a monopoly, which no longer seems to encompass the types of massive companies that control much of the digital world. The European Union this year launched a preliminary investigation into Amazon to address whether the company had violated antitrust rules.
In the United States, the company has been under fire for paying its employees too little. It recently raised its minimum wage to $15 per hour, up from $11, higher than the federally mandated minimum of $7.25. Bezos is one of world's richest men, and the company he leads is among the world's most valuable, having briefly topped a $1 trillion market cap. Many cite this as evidence that Amazon can afford to pay its workers more.
The company is also a frequent target of President Trump's commentary on Twitter. Trump places the woes of the U.S. Postal service squarely at the online giant's door, though many dispute the veracity of those claims.
The company faced backlash for its HQ2 search as well. Many questioned the company's need for tax breaks and incentives, while others protested the rising real-estate markets and traffic congestion that are expected to result from an influx of Amazon employees. Community groups and politicians alike have pushed back against the proposed sites in both New York and Northern Virginia, with many calling for an end to the incentives Amazon is receiving.
Potential rewards far outweigh the risks
The specter of increased regulation is one that faces a host of today's most dominant companies, as the world's governments rethink antitrust regulations that were written more than a century ago. Yet even when considering the challenges Amazon faces, the opportunities for growth far outweigh the risks. The growing opportunities in e-commerce, cloud computing, and new markets like advertising show that the company is not only firing on all cylinders, but also positioning itself for future success.