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3 Reasons Why Amazon Is Still a Top Stock

By Jennifer Saibil - Feb 9, 2021 at 8:55AM

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The online retailer rocked the fourth quarter, and it still has a lot more up its sleeve.

It's may not be the most interesting stock pick to make at the moment, but Amazon (AMZN 3.66%) is still one of the best. The e-commerce giant was a force throughout the pandemic, and it proved its mettle again with a blowout fourth quarter earnings report to neatly tie up 2020.

What can investors expect in 2021? More of the same. Even when Founder and CEO Jeff Bezos hands over the reins to Andy Jassy come July, Amazon is well-positioned to continue grabbing market share and rewarding its investors.

Here are three reasons why.

1. Shopping is quickly shifting to digital

The move to online shopping exploded during the coronavirus pandemic, and that shift is likely to remain strong even after the pandemic is brought under control. An Adobe Analytics report found that online holiday shopping this past December increased 32% year over year reached nearly $200 billion in sales. Consumers spent at least $1 billion online every single day of the holiday shopping season, which was a first.

A woman looking into a cardboard box.

Image source: Getty Images.

A significant portion of those holiday sales were made on the Amazon website. The holiday shopping season is typically the best for retailers, and Amazon reported a strong fourth quarter earnings. That fourth-quarter report also included a delayed Prime Day sales event in October (instead of the usual July). Amazon's sales surged 44% year over year for the quarter, flying past expectations.

As significant and growing as online sales appear to be, they still only account for a fraction of overall retail sales. The U.S. Census Bureau estimates that e-commerce sales made up just 14% of total spending in the 2020 third quarter. So there is still plenty of room for market share growth.

It's hard to think of any retailer that's not getting in on digital these days, but Amazon is certainly the company to challenge. Amazon management said it is expecting sales to soar between 33% and 40% in the 2021 first quarter, suggesting that the market is still wide open for the e-commerce leader. 

2. Amazon is everywhere

Bezos had this to say on the Q4 earnings conference call: 

Amazon is what it is because of invention. We do crazy things together and then make them normal. We pioneered customer reviews, 1-Click, personalized recommendations, Prime's insanely fast shipping, Just Walk Out shopping, the Climate Pledge, Kindle, Alexa, marketplace, infrastructure cloud computing, Career Choice, and much more.

And the list goes on. Amazon has created its own handmade products sales category to challenge Etsy (ETSY 4.98%) and launched a personal styling service similar to Stitch Fix (SFIX 3.62%), as well as Made For You, a customized clothing service. It opened several digitally powered Amazon Go and Amazon Fresh stores in 2020, and recently launched Amazon Pharmacy. It's also marketing its Just Walk Out cashierless technology to other stores for an easily scalable revenue source, and it formed a partnership with Hudson shops to use the technology in several of its 1,000 travel convenience shops.

Incoming CEO Jassy was instrumental in growing the company's on-demand cloud computing platforms and APIs subsidiary Amazon Web Services, which has been a huge addition to the business. AWS, which is growing just as fast as the retail arm, accounts for 12% of sales but more than half of the company's profits. Amazon is launching AWS infrastructure capabilities in three new regions by mid-2022, and has plans to open in three more. It's also expanding capabilities in existing zones.

3. Amazon is not afraid to fail

Amazon invested $60 million Kozmo.com, a precursor to Prime, in 2000. Related to that deal, how many readers remember that Amazon (through Kozmo) offered a form of one-hour delivery on select products in select cities as far back as 20 years ago? That project and that service died because, at the time, the free delivery option was just too costly to execute profitably.But management didn't give up, and only a few years later Amazon launched Prime and it also built out its delivery operations to the point where same-day deliver of a much larger selection of goods can now be offered in several markets.

Bezos noted: 

If you do it right, a few years after a surprising invention, the new thing has become normal. People yawn. That yawn is the greatest compliment an inventor can receive. When you look at our financial results, what you're actually seeing are the long-run cumulative results of invention. 

The bottom line is, we can't necessarily envision the new products and ideas that will fill shelves and claim our attention in the coming years. That's why they're innovations. But we can be fairly certain that the idea people at Amazon are thinking ahead and working on the next disruption.

Still a top stock

Amazon's stock price gained a considerable 77.7% in 2020 thanks in no small part to these economic forces and the things Amazon learned. But the gains are not over, and Amazon remains a top stock to hold.

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Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,302.93 (3.66%) $81.38
Etsy, Inc. Stock Quote
Etsy, Inc.
ETSY
$82.15 (4.98%) $3.90
StitchFix Stock Quote
StitchFix
SFIX
$8.59 (3.62%) $0.30

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