Amazon's (AMZN 0.75%) stock soared late last week following the release of its third-quarter numbers. Although Amazon Web Services' revenue fell just a bit short of expectations, this cloud computing arm's beefy profits still drove the company to a Q3 earnings beat. Perhaps more importantly, Amazon's cloud computing business's profit margin rates have been expanded to long-term norms. Everything's back to normal for this breadwinning profit center.
Amazon Web Services' profitability recovery, however, is hardly the only reason you might want to own Amazon stock right now. It's still a biggie, to be sure. However, there are three other bullish arguments that aren't getting their due attention. Here's a closer look.
1. E-commerce is profitable again and may rise even more
You may have forgotten it, but Amazon's e-commerce operation slipped into the red last year thanks to rampant inflation; freight and fulfillment costs proved particularly problematic.
That's changing now, though. The company's North American arm has never been more profitable than it was last quarter, with its operating bottom line growing to $4.3 billion. Cost-cutting paired with healthy consumerism has a great deal to do with this recovery.
Data source: Amazon Inc. Figures are in billions of dollars.
The most exciting development on the profitability front, however, is arguably Amazon's international arm's long-overdue swing to a profit. While this sliver of the company's business was thrust into the black during and because of the COVID-19 pandemic, this success clearly wasn't built to last. The one materializing now -- under more normal circumstances -- is apt to be sustainable.
2. Ad revenue keeps growing at a double-digit pace
Have you ever wondered how Amazon chooses which products to feature when you browse Amazon.com? It's not luck or random chance. In most cases, third-party sellers are paying for this prominent placement.
This advertising business has become surprisingly big, too, and continues to grow. Last quarter's ad revenue of nearly $12.1 billion was yet another record, up more than 26% year over year. The pace of progress isn't slowing down at all.
Data source: Amazon Inc. Figures are in billions of dollars.
The advertising business's growth isn't being warmly embraced on all fronts. Many of Amazon's third-party sellers that either don't or can't afford to advertise are less than stoked about this arguably unfair playing field. Disgruntled partners may end up selling their goods via other venues.
That's not necessarily a problem for Amazon, however. Monetizing its website by selling ad space to third-party sellers may end up being even more profitable than merely selling goods for the company. In this vein, analytics outfit Insider Intelligence believes Amazon's advertising business will continue growing from $44.9 billion this year to $67.6 billion in 2025. That's an annualized growth forecast of nearly 23%.
3. Prime memberships continue to swell
Last but not least, buy Amazon stock because more and more people are signing up for Prime membership, which offers perks like free one-day shipping on millions of items plus access to a large library of streaming videos. The company generated record-breaking subscription revenue of nearly $10.2 billion in the quarter ending in September.
Data source: Amazon Inc. Figures are in billions of dollars.
Not all of this is necessarily Prime revenue. Included in this figure are the consumers who only have access to Amazon's audiobooks, e-books, digital music, or just streaming video without any free shipping benefits.
It's not exactly a stretch to suggest the biggest chunk of this revenue is coming from full-blown Prime members, however. Based on Consumer Intelligence Research Partners' estimate of around 170 million U.S. Prime customers paying $139 per year for the service plus a few tens of millions more subscribers outside of the United States, the math works out.
Just understand that the benefit of Amazon's Prime program isn't the contribution it makes to the company's bottom line; Prime is probably a loss leader. The benefit is on the back end; once a consumer has access to free shipping, they're much more likely to make a purchase at Amazon.com. Although the numbers vary from one source and one year to the next, Prime members spend on the order of two to three times more than non-Prime shoppers do at Amazon.com.
There are too many reasons to own Amazon stock
None of these three reasons hold a candle to the overarching reason to own a stake in Amazon at this time. That's still Amazon Web Services, the company's cloud computing arm that's printing stacks of money again. This is apt to remain the case for the foreseeable future.
These three other profit centers are certainly no waste of time and resources, however, in the aggregate. That's especially true in light of the fact Amazon's international e-commerce business is on the verge of swinging to a sustained profit.
To see these other operations doing so well side-by-side with Amazon Web Services makes a much stronger bullish case than most investors seem to appreciate right now.
