When it's all said and done, investing comes down to making money. Warren Buffett once famously said, "The first rule of an investment is don't lose money. And the second rule of an investment is don't forget the first rule."
Luckily, there are several approaches to making money in the stock market. Some investors prefer to lean on dividend stocks that provide consistent, reliable income. Some investors prefer finding value stocks trading below their intrinsic value. Some investors prefer high-risk, high-reward growth stocks that can produce great returns.
Buffett himself isn't known for his growth stock investing, but one stock in Berkshire Hathaway's portfolio has been the poster child for high growth: Amazon (AMZN 0.72%). Despite Amazon's generational gains so far -- over 5,600% in the past 20 years and nearly 800% in the past decade -- the company still has multibagger potential.
NASDAQ: AMZN
Key Data Points
What is a multibagger?
A multibagger is the term given to a stock that's delivered exceptional returns over a period. While what qualifies as "exceptional" may be different for each person, multibaggers have specifically gained multiples of their initial purchase price or cost basis.
Imagine you invest $1,000 in a company's stock, and over time, the value grows to $3,000. That would be considered a three-bagger because the investment tripled in value. If it quadrupled in value, it'd be a four-bagger.
Amazon's ability to be a multibagger, even for someone buying shares today, comes down to the growth potential in its three main segments: e-commerce, the cloud, and adtech.
The undisputed king of e-commerce
There's no doubt Amazon has become a household name because of its e-commerce business. It's essentially become synonymous with e-commerce, holding a 37.8% market share in the U.S. as of June 2022, far outpacing second-place Walmart at 6.3%.
In the second quarter of 2023, Amazon generated $134.4 billion in revenue, up 11% year over year, and its online store accounted for $53.0 billion of that. Add in third-party seller services and subscriptions related to its e-commerce empire, and the revenue share rises to $95.2 billion. It's not the most profitable business for the company, but it's by far the biggest.
Globally, the e-commerce market was valued at around $24.4 trillion in 2021, according to GMD Research. By 2030, it's expected to grow to $62.4 trillion, representing an 11% compound annual growth rate (CAGR).
AWS is the foundation for Amazon's bottom line
E-commerce is Amazon's biggest revenue generator, but the company's profits largely depend on its cloud segment, Amazon Web Services (AWS). AWS made up only 16.5% of Amazon's Q2 revenue but just under 70% of its operating income.
Although growth for this segment is slowing a bit from previous years, it's still the leader in the global cloud market. As Amazon continues to expand its offerings and incorporate AI, it should benefit from its position as the market leader and the rising demand for cloud services overall.
In 2022, the global cloud computing market was worth just under $483 billion. By 2030, it's projected to be climb to over $1.55 trillion, representing a CAGR of 14%.
Tailoring its services to cater to advertisers
E-commerce and AWS get a lot of attention, but Amazon's advertising division has been picking up steam lately. Here's how its advertising revenue has fared in the past six quarters:
| Quarter | Revenue | YOY Growth |
|---|---|---|
| Q1 2022 | $7,877 | 25% |
| Q2 2022 | $8,757 | 21% |
| Q3 2022 | $9,548 | 30% |
| Q4 2022 | $11,557 | 23% |
| Q1 2023 | $9,509 | 23% |
| Q2 2023 | $10,683 | 22% |
Data source: Amazon Q2 2023 earnings release. Revenue data in millions. YOY = year over year.
Amazon.com offers plenty of advertising opportunities, but as the company expands to different mediums, so do those opportunities. An important catalyst should be its emphasis on adtech services and letting advertisers tailor their ads and placements as much as possible. One key example is the company's NFL Thursday Night Football placements.
The global adtech market was valued at just over $886 billion in 2022 and is expected to grow at a compound annual rate of about 14% until 2030.
Amazon is in a good long-term position
The projected growth of the industries that include Amazon's three main segments doesn't guarantee the company itself will grow at the same pace. But as a global giant known for its track record of expanding into new markets, there's little reason to believe it can't. It has just as many resources as any company in those spaces, and it has shown that growth is its priority.
It can be hard to believe a company valued at over $1.4 trillion as of this writing can again achieve multibagger status, but some of Amazon's businesses are still in their early stages. The gains won't happen overnight, but the company is well positioned to pull it off in the long run.
