After dropping 50% last year, Amazon's (AMZN 0.58%) stock is finally gaining momentum. It's up 59% this year, and investors are excited about what's to come. There's plenty to expect from all of Amazon's businesses. What will it look like in another five years? Let's take a look.
No rival in e-commerce
Amazon has about 40% of the U.S. e-commerce market, with the closest competitor at 6%. That's a moat that would be very difficult to challenge the way things stand today. But Amazon is padding the moat to maintain it long-term.
There are two major ways Amazon's model makes it nearly impossible for any rival to catch up. The first is Prime. For a $139 annual fee, members get almost everything they need delivered free to their doorsteps within a day or two. Customers can't find that anywhere else, so their spending money goes to Amazon with overwhelming frequency.
That kind of feat would require a powerful network to compete with it, leading to the second edge that Amazon has. It has developed a cheap, vast delivery network, with its own fleet of vehicles, sophisticated robotics, and premium technology that makes its system unmatchable.
Within five years from now, it's highly unlikely that any other company will make substantial inroads into Amazon's territory. More likely is that Amazon has faster and cheaper ways to get products to customers, cutting down many routes to a few hours, and that it has more Prime members.
As inflation eases, it's also likely to build up sales growth so that five years from now, e-commerce sales and profits will be much higher.
No rival in cloud computing
Amazon Web Services (AWS) is the premier cloud computing service, with 32% of the market. That's not the same lead as e-commerce, but it's still a solid distance ahead of Microsoft's Azure, with 23% of the market, and Alphabet's Google Cloud, with 10% of the market.
AWS sales increased 16% over last year in the 2023 first quarter, which is a slowdown from around 30%, which was typical growth for a long time. However, it's still respectable given current market conditions, and profitability was still strong. AWS' operating income was $5.1 billion, slightly down from $6.5 billion last year.
Under these circumstances, management is focusing on customer service and price, working with clients to manage their packages to meet their demand at the moment. The benefit of this is that clients fishing around for new services while they're under pressure might switch to Amazon, and this could lead to even better performance when the economic landscape changes.
AWS is also heavily investing in technology, and it launched revolutionary generative AI capabilities for the platform. One example is Code Whisperer, which allows developers to input prompts to the system to do coding.
In five years, AWS could have an even greater market share, and it will have many more capabilities, probably some technology we can't even envision today.
Looking to dominate new businesses
The other thing Amazon does best is dominate new industries. In five years, Amazon could be a leader in healthcare, streaming, and the other businesses it's investing in.
Its advertising business has been its fastest-growing, increasing 21% over last year in the first quarter. Management attributed its performance to Amazon's robust AI technology that can target shoppers with the most relevant ads. Considering Amazon's audience of 200 million Prime members plus other shoppers, it's a no-brainer business.
Amazon stock could be much more valuable
Investors realized they weren't giving Amazon the attention it deserved for posting robust sales growth despite everything going on in the economy, and the stock has soared over the past month or so. It's been beaten down for a while and is only up 45% over the past five years. The next five years should be a lot better.
Warren Buffett admitted that he missed the boat on buying Amazon stock, but that didn't stop him from taking a position in 2019. Looking forward, Amazon is in an excellent position to keep rewarding shareholders for many years.
