Investors were not happy with Amazon's (AMZN 1.21%) recent results, and consequently the company's stock dropped more than 10%. However, there are still many reasons why investors should buy the company's shares. The company's web services sector is a fast-growing business, it has continued its tradition of constantly innovating its services and products to increase the satisfaction of customers, and it is focused on a long-term growth strategy.
The web services sector has a great potential
Amazon's web services sector recorded an impressive growth rate in the last quarter. Though it brought less than 8% of the company's domestic revenue, it posted 52% revenue growth. Of course, it generated less than 1% of Amazon's revenue on the international front. However, it recorded a 25% year-over-year revenue improvement in this market segment. IDC Research said the worldwide public cloud services revenue is expanding at a double-digit growth rate. Given that the web services sector recorded sales of less than $4 billion in 2013, you should get an inkling of how large Amazon's potential is.
Amazon is constantly innovating
Amazon is always evolving new means to deliver its products, including the possibility of dispatching drones to deliver products for customers. The innovations enrich customers' experience and bring a great advantage over the company's rivals in a competitive environment. Wal-Mart has grown its revenue by 77% in the past decade, but Amazon has recorded a revenue increase of more than 1,000% at the same time. In addition, analysts expect earnings growth next year of 132.47% over this year's earnings.
It is also about long-term growth
The brick-and-mortar beginning of numerous retailers is accompanied by challenges in terms of tradition and innovation. The companies are focused on quarterly margins and same-store sales. Amazon, meanwhile, is focused on the long term. This is reflected in the billions of dollars that the company is investing in future expansion. Amazon is expanding into new sectors, with groceries being just one fantastic example. Over the next five years, analysts that follow this company are expecting it to grow earnings at an average annual rate of 28%.
Netflix (NFLX -0.66%) is following a similar pattern to Amazon. It is trading its revenue growth for its free cash flow. The company competes with Amazon's Instant Video for customers, and recently announced that it would pursue documentaries more aggressively in a bid for more original content. Netflix has massive potential in its streaming business. The worldwide streaming video market is expected to hit $35 billion in revenue by 2018.
eBay (EBAY 2.61%) concentrates on its PayPal and Marketplaces business. Its PayPal division wants to maintain its market share in the worldwide payment market, and wants to own the payments space. Due to the potential in the sector, eBay will want to expand this business quickly. Gartner expects global mobile transaction volume to average a 35% annual growth rate between 2012 and 2017. It is also forecasting that the market will worth $721 billion by 2017.
Final Foolish thoughts
Strong reasons abound for buying shares of Amazon. The company's web services business is showing fast growth, and Amazon is constantly innovating for the satisfaction of the ordinary customer. The company is also focused on a long-term growth strategy in its operations. Over the long term, its strategy will continue to result in market share gains.