As one of the largest and most dominant enterprises in the world, there's a lot for investors to like about Amazon (AMZN -0.70%). The tech giant has its hands in multiple fast-growing industries, which helped drive up shareholder returns over time.
But ongoing macro headwinds continue to hurt the business, with revenue growth slowing dramatically in recent quarters. And as of this writing, the stock is down 33% from its all-time high from July 2021.
But don't forget that Amazon is still a top growth stock investors should consider. Here are three reasons to own this big tech company.
NASDAQ: AMZN
Key Data Points
The leader in cloud computing
With a 38% share of the U.S. e-commerce market, Amazon is undoubtedly well known for its leadership in online shopping. After all, this business went from selling only books online to selling nearly everything.
In recent years, though, Amazon Web Services (AWS) has attracted more of the attention. AWS is the company's cloud computing platform, which offers computing, data, and storage services for businesses of all sizes, so that they don't have to invest in IT resources in-house. It's meant to be a cheaper and much more flexible service. Some of the most successful and industry-leading businesses are customers of AWS, including Coca-Cola, Netflix, and Vanguard.
According to Statista, AWS controlled 32% of the global market for cloud services, giving it a leading share. In fact, the next two services combined, Microsoft Azure and Alphabet's Google Cloud Platform, had a roughly even market share with AWS.
In 2022, AWS generated $80 billion in revenue (up 29% year over year). Overall Amazon revenue increased just 9%, so AWS has been a key growth engine. Moreover, the segment posted an operating margin of 28% last year. As a bigger piece of Amazon's total sales come from its cloud unit, profitability is set to expand.
A favorite for consumers
One of Amazon's most popular offerings is its Prime membership. For $15 a month (or $139 annually), customers have access to free delivery on millions of items, often in the same day. Another perk is the Prime Video streaming service.
This has vast benefits for Amazon. For starters, it is estimated that there are more than 200 million Prime members worldwide, providing an important revenue driver for the company. These people tend to spend more than a non-Prime customer who shops on Amazon. And Prime helps boost repeat-purchase behavior.
Founder Jeff Bezos believes Prime and its entertainment offerings keep Amazon's competitive flywheel spinning. "When we win a Golden Globe, it helps us sell more shoes in a very direct way," he said in 2016 at a tech conference.
What he means is that Prime can attract customers who are looking for different things at the start, but who end up using all the other benefits of the service. And Amazon can simply monetize this activity, which is a powerful position to be in.
Consider the valuation
While Amazon shares are up 49% in 2023, they remain well off their peak. And this presents a lucrative opportunity. The stock trades today at a price-to-sales (P/S) multiple of 2.5. Over the past five years, shares carried an average P/S of 3.6, so the current valuation is historically cheap.
Many investors have soured on Amazon stock because of the company's slower growth as a result of the uncertain economy. But over the next five years, Wall Street consensus analyst estimates call for revenue to rise at a compound annual rate of 11%, with earnings per share going from a $0.27 loss in 2022 to positive $6.16 in 2027. That type of strong fundamental performance would certainly help push the stock price higher.
Investors have the chance right now to buy one of the best businesses in the world, one that still has solid prospects, at an attractive entry price.
