Amazon's (AMZN -2.06%) stock was listed in May 1997, so this year marked its 25th anniversary as a publicly traded company. It was a pioneer of online sales back then, and although e-commerce still remains central to its business, it has expanded into other markets to become one of the largest companies in the world.
As we come to the close of 2022, Amazon stock is down by 50% year to date amid the broad sell-off in the technology sector, but any investor who bought the stock at its initial public offering (IPO) and held on is still sitting on astronomical gains.
Let's look at exactly how much they've been rewarded so far and consider where Amazon stock might go next.
E-commerce, cloud services, streaming, and advertising
That just about sums up the list of the core businesses that contribute meaningful revenue to the organization. But it doesn't capture other emerging areas Amazon has stepped into. One is electric vehicle manufacturing, through its stake in up-and-coming producer Rivian Automotive. Amazon was initially a Rivian customer before deciding it would be fruitful to own a slice of one of the fast-growing electric vehicle industry's upstarts.
The point is Amazon's market valuation has exceeded $1.7 trillion in the past, and that doesn't happen at a company that doesn't possess an insatiable appetite for growth and expansion.
E-commerce still provides 84% of the company's total revenue. Coming in second is Amazon Web Services (AWS), which now leads the entire cloud computing industry by sales and scope of solutions. The cloud is an increasingly important technology because it allows businesses to migrate their operations and their touchpoints with customers online. Whether those businesses need simple file storage or advanced artificial intelligence tools, AWS has them covered, and this could be a $1.5 trillion annual opportunity by the end of the decade.
During 2021, Amazon began reporting advertising revenue as a standalone line item (it used to be rolled into the e-commerce category). It turns out the ad segment is a financial powerhouse, generating $35.8 billion in sales over the last four quarters, which was even more revenue than was generated by Alphabet's YouTube -- the largest video-streaming platform in the world.
Amazon's flagship e-commerce website gets 2.6 billion hits per month, so it's an advertiser's dream if they're trying to market a product to consumers. But the company has several other potential opportunities to bring in more ad dollars. For example, its Prime video-streaming service has entered the world of live sports by acquiring the rights to the NFL's Thursday Night Football. Over time, advertising could become a powerful revenue driver for Amazon, especially since it logged a whopping 30% year-over-year growth in the third quarter alone.
Amazon's having a tough year, but focus on the long run
Since Amazon derives most of its revenue from consumers, it's suffering due to this year's high inflation and rising interest rates, which have left household finances tight. Amazon's total revenue is expected to come in at $510 billion this year, which would amount to growth of just 8.6%.
But there is some good news. Consumer Price Index data from the past half year suggests that U.S. inflation peaked in June, so 2023 could be far more favorable for the e-commerce industry.
Nonetheless, investors should really focus on the long term. The chart below makes that clear -- Amazon's revenue came in at just $147 million in 1997, the year it went public, and its run of growth since then has been remarkable.
Here's how much a $10,000 investment in Amazon's IPO would be worth now
On May 15, 1997, Amazon went public for $18 per share. Over the course of the last 25 years, management has elected to conduct several stock splits to shrink its soaring share price. This helped smaller investors retain the ability to buy into the company before fractional share buying became more or less ubiquitous. Below is a list of those splits:
- 2-for-1 split on June 2, 1998;
- 3-for-1 split on Jan. 5, 1999;
- 2-for-1 split on Sept. 1, 1999;
- 20-for-1 split on June 3, 2022.
Factor those splits in, and Amazon's IPO price of $18 per share would be adjusted to $0.075 per share. With Amazon closing trading Wednesday at $86.77 per share, those early investors would be sitting on a mind-boggling gain of 115,933%.
What does that mean in dollar terms? An investment of $10,000 at Amazon's IPO would be worth a whopping $11.5 million today.
That amounts to compound annual growth of 31.7%, which is five times greater than the compound annual return of the benchmark S&P 500 index over the same period. In layman's terms, on average, Amazon's market value growth was five times the overall market's growth each year for the last 25 years!
Could Amazon stock continue to outperform the market over the next decade (and beyond)? It's likely because the company has its fingers in so many transformative industries, and it's still expanding. With the stock down 49% in 2022, this might be an excellent opportunity to buy for the long run.
