Amazon (NASDAQ:AMZN) has had an epic run since its founding. The business has grown from a small online bookseller in 1995 to "the everything store" it is today with an astounding $296 billion of revenue over the last 12 months.
As a result of that growth, the company's stock has been on a jaw-dropping tear. Amazon went public on May 15, 1997 at $18 per share, but it has split its stock three different times since then, such that the "split-adjusted" IPO price was $1.50 per share. The stock trades at $2,380 per share as of this writing -- that's a gain of 1,587 times its split-adjusted IPO price, and would have turned $1,000 into $1,586,667.
But Amazon is still just getting started. As founder and CEO Jeff Bezos likes to say, "it's still day one" at Amazon. So where will the company be in 10 years?
Amazon is best known for its e-commerce business, but what most people don't know is how small Amazon's market share still is. Global retail sales were an estimated $25 trillion last year. Amazon's net sales, excluding its Amazon Web Services ("AWS") and other revenue line (mostly advertising), was $243 billion over the last 12 months. Even if we gross that up for the total retail value flowing through Amazon's system, known as gross merchandise volume ("GMV"), Amazon sees an estimated $300 billion to $350 billion of total commerce transacting on its platform. That's just 1.2% to 1.4% of global retail sales.
It's hard to say where Amazon's share of global retail sales will be in 10 years, but it's almostly certainly going higher. With just over 1% share today, there is a huge growth runway available to the company. And the COVID-19 pandemic is only accelerating Amazon's e-commerce growth as more people are shifting spending from offline to online channels.
Amazon Web Services
AWS is Amazon's cloud services business. This was a company project initially intended to serve Amazon's internal computing needs but blossomed into a service for other companies after Amazon executives realized the gold mine they were sitting on. AWS officially launched in 2006, and given the $10.2 billion of net sales it generated in the first quarter, is already a $41 billion annual revenue run-rate business. That is staggering growth.
As is the case with e-commerce, the opportunity ahead for cloud services is vast. AWS CEO Andy Jassy stated in December that the company is targeting the $3.7 trillion global IT market -- only 3% of which he believes has transitioned to the cloud from "on-premise" computing. That would mean Amazon is currently tapping into just over 1% of the total market opportunity.
Other businesses and new ventures
E-commerce and AWS are two huge pillars within Amazon, but the real "X factor" for the company is its pioneering culture of invention. There has never been a company in the history of the world that has been this ambitious.
Most companies stay in their lane, focusing on their core businesses. Not Amazon. If Amazon executives identify a big opportunity in virtually any sector, and Amazon has a reasonable shot of building a big business out of it, there's a good chance it will try.
Of course, not everything works. The company has tried and failed many times. It tried to compete with eBay in auctions early on and failed. It once tried to sell fine jewelry and diamonds online but shut down those efforts. It has tried and failed to secure a position in online travel more than once, and it invested huge sums in developing the Fire phone before it flopped. There are many examples.
But when Amazon gets it right, it tends to do so in a big way, and those wins more than make up for the failures. The company's third-party marketplace took a few iterations to get right before it began to take off. That's now one of the company's cash cows. AWS and the Echo smart speaker were two projects that the company invented out of thin air, leaving established tech giants scrambling to catch up.
Today, Amazon is planting seeds in healthcare, global logistics, drone delivery, diagnostic testing, and other areas. Given the long runway ahead in e-commerce and public cloud, in addition to all the other irons Amazon has in the fire, it's a near-certainty that Amazon will be far bigger and more profitable in 10 years. Investors should buy Amazon and hang on for the next decade and longer.