It's hard to predict what Amazon.com (AMZN 0.78%) will look like a decade from now because it's been so unpredictable throughout its history and is always looking for the next big thing to get into.
Over the years, Amazon has expanded from its roots selling books to selling almost everything under the sun and offering a host of additional services along the way, including free shipping, same-day delivery, video streaming, smart-home devices, and cloud storage.
And just as no one predicted 10 years ago that Amazon would emerge as the world's largest cloud provider, or that it would be opening physical bookstores, or offering innovative ways for customers to shop without cashiers (Amazon Go stores), there's a good chance Amazon will be pursuing a growth opportunity a decade from now that no one is even talking about currently.
While we can't say for sure what Amazon will look like in 2029, it makes sense for investors to look at some of the key areas the company is pursuing.
IMAGE SOURCE: AMAZON.COM.
Expanding international reach
Amazon is the largest e-commerce platform in the U.S., with an estimated 49% share of online sales, according to eMarketer. It's on pace to eclipse Walmart as the largest apparel retailer in the U.S., and Amazon has its sights set on dominating grocery as well.
Although Amazon is already enormous in size given its nearly $233 billion in annual revenue, there are still many places around the world where Amazon hasn't penetrated. International revenue makes up about 28% of the company's total revenue, and the largest market outside of North America is Germany.
Yet Amazon will likely run into some obstacles expanding internationally over the next decade. In China -- where Amazon has less than a 1% share of e-commerce sales -- Alibaba has a stranglehold on the market. In India, where Amazon has been investing heavily, Amazon has run into an obstacle in the form of new government e-commerce and anti-monopoly policies that force foreign competitors to compete more on quality of service instead of price.
In other places, Amazon is just getting its feet wet. In the past year, Amazon has started to expand in Brazil and just opened its first e-commerce store in Turkey. Amazon has generally run its international operations at a loss, but that's indicative of Amazon's moat. It requires billions of dollars to build the infrastructure in these countries, not to mention navigate around complicated laws and regulatory environments. There are not many companies in the world, except maybe Walmart, that have the capital and patience to lose money for several years while building the necessary scale to earn a profit.
Advertising is exploding
Another exciting opportunity for Amazon is its booming advertising business. Amazon allows other companies to market their products on Amazon's product listing pages and rakes in billions of dollars in revenue in the process. More people start their online hunt for a product on Amazon as opposed to Alphabet's Google, for example. This is very attractive to advertisers, since they know their items are immediately in front of people already in a shopping mindset as they browse products listed on Amazon.
While Amazon doesn't disclose advertising revenue specifically, its "other" revenue category, which primarily includes ad revenue, increased 117% to $10.1 billion in 2018. Amazon's ad business is growing at a faster clip than Facebook's and Alphabet's. It's estimated that by 2020, Amazon's ad business will reach $15 billion, which eMarketer expects to come at the expense of Google's digital ad share.
Check out the latest earnings call transcript for Amazon.
Riding the cloud
While Amazon's core retail business will continue to grow around the world, investors should keep their eye on Amazon's cloud business Amazon Web Services (AWS). AWS helps companies connect and scale a host of services and systems in the cloud, including machine learning, blockchain, storage, database system hosting, analytics, and business applications, among several other services.
Revenue from AWS has more than doubled to $25.7 billion over the last few years. It was estimated that Amazon had 52% share of the public cloud service market in 2017, according to research firm Gartner.
What's more, AWS contributed nearly 59% of Amazon's total operating profit last year. One analyst with MKM Partners thinks that AWS alone could be worth $1 trillion by 2024, which is more than Amazon's current market value of $871 billion (total shares outstanding times the share price).
Amazon 2029
Over the next decade, you can expect Amazon to continue to push forward internationally and penetrate the crevices of commerce and help migrate more people over to a digital economy. There's still a lot of opportunity domestically, as well, given that e-commerce sales still represent less than 10% of U.S. retail sales.
International, advertising, and AWS are some of the big things that will drive growth going forward, but CEO Jeff Bezos is never short of ideas of where to steer the company. With Amazon currently pursuing opportunities in non-retail industries, such as the $135 billion video game industry and the $3 trillion healthcare industry, the company will likely look very different a decade from now. But that is what makes Amazon one of the most dynamic companies in the world, and why it's a great growth stock to tuck away in your nest egg.
