Stock market followers will recognize the acronym FAANG, although name changes make it somewhat dated. Facebook recently changed its name to Meta Platforms (META 1.97%). The other companies are Amazon (AMZN 1.26%), Apple (AAPL 1.56%), Netflix (NFLX 2.08%), and Alphabet (GOOG 2.65%) (GOOGL 2.81%).
Each has proven itself a leader in its respective field and has had tremendous profit growth, and share prices have followed suit. However, if I had to pick one company in the group, Amazon would be my choice.
Online retail set to accelerate
When you think about online retail, Amazon is likely the first company that comes to mind. That's because it has rapidly expanded to selling everything imaginable at low prices and with great convenience.
After the pandemic struck, e-commerce sales as a portion of total retail sales accelerated, reaching 15.7% in the second quarter compared to 11% at the end of 2019. Although that slipped a bit to 13% in the third quarter as stores reopened to the public, the latest COVID-19 variant, omicron, could cause governments and businesses to implement restrictions again. Although unfortunate, this development would likely help online sales growth accelerate like it did previously, which would prove beneficial to Amazon.
In 2020, the company's North American sales grew by more than 38% to $236.3 billion, and its international division experienced nearly 40% growth to $104.4 billion.
Amazon Prime, the company's popular subscription service, helps boost shopping on the site. For $119 a year, members get fast shipping without an extra delivery charge. It started this year with 150 million paid subscribers, which grew to 200 million in April, the latest figure provided by the company.
Subscribers also get a streaming service with their Prime subscription. Amazon has been boosting content, and the $8.5 billion purchase of MGM Studios will expand its library. This should help it to better compete with other streaming services, such as Netflix and Walt Disney's (DIS 2.07%) Disney+.
Amazon has been a hugely profitable company. For the first nine months of 2020, its operating income grew by nearly 34% to $21.4 billion.
This quarter, management expects operating income to come in at $0 to $3 billion compared to $6.9 billion a year ago. Remember, last year's results reflect higher online shopping due to the pandemic. Plus, like others, Amazon is facing higher supply chain and labor costs.
But management invests for the long haul. This includes expanding capacity that should lead to better product availability than other retailers, allowing Amazon to keep customers happy and loyal.
Plus, Amazon isn't merely an online retail business. Notably, Amazon Web Services (AWS), its cloud-computing business, continues to have promising prospects. The segment's sales grew by more than 36% this year to $44.4 billion. It also had a 29.8% operating margin, much higher than the other two segments' low-single-digit figures. With companies increasingly relying on data, it is in a good position to benefit.
Certainly, investors weren't enamored with Amazon's third-quarter results or fourth-quarter outlook. The stock's 5% gain this year has badly lagged the S&P 500's 25% increase. However, with strong prospects for increased online shopping and AWS' continued rapid growth, this creates a good opportunity to pick up shares right now and for the foreseeable future.