Amazon (AMZN +3.47%) stock got absolutely crushed last week after disappointing investors with a tepid fourth-quarter outlook. Despite being down 18% since the report (and 45% this year), Amazon has enormous growth potential -- and it could still 10x your investment. Let's see how.
No one can beat Prime
Amazon was ahead of its time when it introduced Prime in 2005 as a subscription service for $79 per year. It now has over 200 million members and provides daily needs for loyal customers. This has created a moat for the company, and it would be nothing short of impossible for anyone else to chip away meaningfully at its share of e-commerce any time soon.
Consider Walmart, which is the largest U.S. company, with $587 billion in trailing 12-month revenue. It launched Walmart+ in 2020 and offers perks like free shipping and access to Paramount's Paramount+ streaming, but it has 6% of the e-commerce market versus Amazon's 38%. At launch, then-CEO Jeff Bezos said: "Free Super Saver Shipping and Amazon Prime...are expensive in the short term and -- we believe -- important and valuable in the long term." That has certainly turned out to be the case.
Despite the negativity about Amazon's third-quarter earnings report, it has made major strides in increasing revenue. Not too long ago it reported about half of Walmart's revenue, but it has been closing the gap and reported more than $500 billion in trailing 12-month revenue.
AMZN Revenue (TTM) data by YCharts
It will likely overtake Walmart as the largest U.S. company by sales in the near future, and its focus on Prime will fuel greater growth for a long time.
Many sales drivers
The other side of that is that Amazon invests the money it gets from e-commerce to acquire other companies and develop new revenue streams. Amazon Web Services (AWS), for example, provided 16% of Q3 sales. That percentage has increased as AWS grows faster than the overall company, which posted a 15% year-over-year sales increase in Q3 versus 28% for AWS.
Amazon recently acquired healthcare company One Medical, and it's likely to announce some major news in how it's proceeding with its healthcare business in the near future. This is a fairly new area for Amazon, and with its spirit of innovation, it could seriously disrupt how healthcare happens in the U.S., and dominate the industry with a huge new revenue stream. It has made several other recent acquisitions as well, such as iRobot, whose products were already popular on Amazon's platform.
Another business I'm excited about is Amazon's "just walk out" technology, which provides a cashierless shopping experience. It has launched the technology in some of its physical stores and is selling it to client companies as well.
NASDAQ: AMZN
Key Data Points
What should we expect in the near future?
Amazon reported a solid Q3, even though it expects some softness in Q4. In the meantime, it's working on its cost structures and making its operations more efficient, setting the stage for better overall performance now, and even more so, when economic conditions improve.
Even AWS is experiencing a slight slowdown as companies tighten their belts, but it remains a huge growth driver with much more to come. Investors should expect AWS to keep contributing revenue and accounting for strong profitability.
Amazon itself is tightening operations as it winds down unnecessary infrastructure it built out to meet heightened demand at the beginning of the pandemic, so it wouldn't be surprising if it tones down acquisitions in the coming months. But that's likely to pick up again at some point.
Can it really gain that much?
As Warren Buffett has put it, winners keep on winning. Amazon is well-positioned to enjoy its status as the leader of e-commerce for many years, and to expand and dominate other industries.
Amazon stock has been one of the best investments in the history of the stock market, and it still has tons of opportunity. It may take a while to 10x your money, but it should deliver over time.
