It may surprise some people that Amazon (AMZN 0.87%) retains high growth potential after years of high revenue increases. The company conducted its initial public offering in 1997 at a split-adjusted price of about 8 cents, it currently trades near $200, and it has a more than $2 trillion market cap.
However, analyzing the company's various businesses shows that its growth rate could actually accelerate in the coming years. Surprisingly, the main generator for the fast rate of revenue and profit increases isn't likely to come from online shopping, an area many think about when discussing Amazon.
It's time to uncover the key growth areas.
Image source: Getty Images.
High-growth area
Amazon Web Services (AWS), the company's cloud-computing business, has been growing quickly as organizations clamor for data. The business provides a host of services, such as computing, servers, and storage, through its large data centers. AWS has been benefiting from industry trends, including global cloud infrastructure spending growing 22% in the fourth quarter.
Amazon's size gives it a competitive edge. That's because data centers require a lot of space and energy to run. Hence, big players dominate, and AWS sits atop this fast-growing industry with the largest market share. Its 30% share in the fourth quarter easily exceeded Microsoft Azure's and Alphabet's Google Cloud's 21% and 12% shares, respectively, according to Synergy Research.
AWS' growth remains robust. The unit's Q4 sales grew 18.9% to $28.8 billion, and profit increased better than 48% to $10.6 billion. Although AWS accounted for 15% of Amazon's sales, it represented 50% of its operating profit.
As organizations continue to rapidly adopt generative artificial intelligence (AI), AWS seems in a good position to benefit. That could result in sales and profit growth accelerating.
Other growth areas
Amazon has other businesses housed in its North America and international segments. These include online and physical stores, devices (such as the Ring camera), and advertising services.
While the businesses have been growing across the board, advertising represents a big growth area. That's because Amazon can use its huge customer base and data to serve advertisers.
Advertising has been a fast grower and become a significant revenue contributor. Q4 advertising service revenue grew 18% year over year to $17.3 billion.
Its retail operations, consisting of online stores, physical stores, and third-party seller services, saw sales increase 8% in Q4 versus a year ago, to $128.6 billion. With its fast and convenient delivery, along with physical stores such as Whole Foods, Amazon remains a formidable retail presence.
Better valuation
Amazon's stock pulled back in the last month as the overall market dropped due to various concerns, including the effects of tariffs on the U.S. economy.
Year to date through March 18, the shares have lost more than 12%, compared to a 4.5% drop for the S&P 500 index. However, that comes after Amazon's stock posted strong gains.
NASDAQ: AMZN
Key Data Points
Fortunately, the recent movement creates a better valuation that long-term stockholders can use as a buying opportunity. The stock sells at a price-to-earnings (P/E) ratio of 35, down from 43 earlier this year. Although that's higher than the S&P 500's P/E of 28, Amazon's high growth potential seems to warrant a higher multiple.
At the current share price, you can buy about 15 shares with your $3,000 investment. However, that shouldn't deter you from owning Amazon, which remains poised to continue rapid sales and profit growth for a long time. It's also important to remember that you can purchase additional shares over time.
