Amazon (AMZN-3.20%) stock has been an amazing long-term performer. It’s grown 1,340% in the 10 year period ending March 31, more than seven-fold the S&P 500’s 176% returns over that period.
In other words, the $1,000 you invested in the cloud computing and online e-commerce company a decade ago would now amount to $14,400. This is $2,760 for every $1,000 invested in the broader market.
It’s understandable that investors wonder about the company’s Amazonian size. They also want to know if it can continue its rapid growth and handsomely reward shareholders.
My opinion is that it can. Here are 10 reasons you should consider buying Amazon stock.
1. This stock is also a short term winner
Although the Motley Fool focuses on long-term investment, the long-term is comprised of short-term periods. It is encouraging to see that stocks can be a short-term outperformer.
Amazon stock has risen 5.5% to March 31, 2020, but the S&P 500 (including dividends), is down 19% over that period. This is due to investors’ worries about the economic impact of the coronavirus epidemic.
2. Amazon’s ecommerce revenue should see a significant boost from the pandemic.
Amazon’s first-quarter revenue from e-commerce is expected to see a significant boost due to the COVID-19 epidemic. People around the globe and the United States are increasingly shopping online to reduce their risk of contracting the virus. People are also spending more money online than they would normally on food and staples such as toilet paper and paper towels because they fear disruptions to supply chains. Some consumers also purchase products that they aren’t used to, such as face masks and gloves, in order to reduce the risk of becoming infected.
Amazon’s ecommerce revenue may be negatively affected by the pandemic in the second quarter. This could happen at least for this year. Economic uncertainty has likely prompted many consumers to cut back on discretionary spending. This reduction in discretionary spending could lead to a greater increase in essentials.
3. Amazon will be long-term beneficiaries from the pandemic
Amazon should see the crisis as a long-term benefit, regardless of what happens in the short-term. Many people who didn’t belong to Amazon’s Prime loyalty programme before the pandemic were able to sign up for it in order get faster delivery and free shipping during the crisis. Some people will be more online-savvy long after the crisis has ended than before.
4. A founder manages the company.
Studies show that shares of founder-led businesses tend to outperform the market. Amazon founder Jeff Bezos founded the company in 1994.
According to his most recent transaction (a stock gift), he held 11.2% of company shares. As of the closing of the markets on March 31, his stock had a value greater than $108 million. Bezos should feel motivated to continue running the company to increase its long-term value.
5. Amazon Prime memberships are growing rapidly
The number of Prime members continues to grow at a steady pace. Amazon announced in January that it had more than 150,000,000 Prime members. Amazon claimed it had over 100 million members around the world in 2018, according to its 2018 report.
Prime members are more likely to spend money on the company’s website than nonmembers. One study found that Prime members spend more annually than nonmembers.
Prime membership costs $119 per annum or $12.99 per monthly. Amazon increased Prime’s standard free-delivery benefit by reducing delivery times from two days to one. (Due to the sudden surge in orders, delivery times have fallen recently. Members can also stream a variety free movies, TV series, and music among other benefits.
6. U.S. online sales continue taking market share from brick and mortar sales
Amazon’s domestic business has seen a surge in popularity as Americans prefer to shop online. According to the Census Bureau in the fourth quarter 2019, 11.4% of U.S. retail sales were e-commerce. According to the Census Bureau, 11% of total retail sales in 2019 was transacted online. This is an increase of 9.9% from 2018.
E-commerce sales will never reach 100% of total retail sales. There is certainly room for growth in that 11.4% number.
Click here for Amazon stock forecast 2025.
7. Online shopping continues to gain popularity all over the globe
Amazon’s international operations are also poised for continued growth from the shift to shopping online. E-commerce sales represented 14.1% of all retail sales worldwide for 2019, an increase from 12.2% in 2018. This number will rise to 22% in 2023.
8. Amazon’s cloud computing service makes it a profitable machine
Amazon Web Services (AWS), which brings in the majority of the company’s profit, is a key contributor to that figure. AWS accounted only for a little over 11% of total revenue in Q4 2019, but 67% of total operational profits.
AWS continues to grow at a rapid pace. Q4 revenue jumped 34% year over the previous year. Canalys projects that the cloud services infrastructure market will grow 32% by 2020. Accordingly to them, growth should continue to be strong.
9. Its e-commerce business won’t be dethroned
Amazon is the biggest online retailer in the U.S., and around the globe. It is so dominant in the U.S. market (and also making strong inroads overseas) that it is extremely unlikely that any other competitor will challenge it.
Prime delivers a large range of products quickly and for free, which is Amazon’s key competitive advantage. Amazon’s large network of huge fulfillment centers allows for this core advantage. This network could not be duplicated without a royal’s permission. It would take years to replicate these physical structures even if a competitor is successful.
According to MWPVL International logistics consultant, there are currently 170 fulfillment centers for the company in the U.S. with plans for 51 more. It also has 188 similar facilities outside the country. These numbers do not include delivery stations or other types of facilities.
10. It offers many additional avenues of growth, including smart home, advertising, healthcare and private-label products.
There are many other reasons you should buy Amazon stock. These include the company’s burgeoning smart-home business, centered on its artificial-intelligence-powered assistant Alexa, and its budding healthcare business, which includes its online pharmacy PillPack.
The company’s ecommerce business has seen an increase in advertising revenues and it is increasing its private-label products.