Buy Amazon Stock for This One Incredible Advantage (AMZN)

Advertisement

CEOs love to talk about innovation, but not many pursue it. After all, it’s extremely risky and can mean losing your job if you fail. But Amazon (AMZN) CEO Jeff Bezos thrives on innovation, and considering that AMZN stock is now worth a massive $300 billion, even his failures have left him an empire.

Buy Amazon (AMZN) Stock for This One Incredible AdvantageAnd some of those failures have been spectacular, including the disastrous Fire phone and Groupon (GRPN) knock-off Amazon Local.

According to Bezos:

“I’ve made billions of dollars of failures at Amazon.com. Literally billions … Companies that don’t embrace failure and continue to experiment eventually get in the desperate position where the only thing they can do is make a Hail Mary bet at the end of their corporate existence.”

But for Bezos, the failures have been well worth it, as the process has led to a variety of breakthrough services.

And perhaps the most impactful has been Amazon Web Services. This is cloud infrastructure that AMZN sells to companies on a usage basis, such as for services (like website hosting), storage and database transactions.

AMZN’s Miracle Money-Making Machine

When Amazon Web Services launched in 2006, the initial customers were mostly tech startups that did not have the funds to build their own infrastructure. But over time, the platform has successfully attracted much larger customers, such as Netflix (NFLX) and Tesla (TSLA).

The underlying rationale for Amazon Web Services is certainly rock solid. Let’s face it, the core Amazon.com e-commerce business generally has a lot of excess capacity. This is to ensure that there is enough capacity for spikes or seasonal changes. Why not leverage this?

Despite this, Amazon Web Services almost did not happen. According to Brad Stone’s excellent book, The Everything Store, the AMZN board was resistant. The belief was that this was just another crazy idea from Bezos that would ultimately waste money and time!

Obviously Bezos didn’t take the advice of the board and pursued Amazon Web Services full bore.

And growth has been torrid. In the latest quarter, AWS revenues surged by 78% to $2.1 billion and the operating margin was a hefty 25%.

But there is certainly lots more room for growth, especially in global markets. For example, AMZN expects to roll out new data centers in Korea and India in early 2016.

Per Amazon’s blog post:

“The region-based AWS model has proven to be a good match for the needs of our global customer base. We have always believed that you need to be able to exercise complete control over where your data is stored and where it is processed.”

OK then, so how big is the cloud opportunity? Based on research from IDC, the market is expected to generate $49 billion in revenues this year and reach about $65 billion by 2018.

But of course, AMZN is also benefiting from the megatrend of e-commerce. Research firm Forrester expects the market to grow from $334 billion in 2015 to $480 billion by 2019. No doubt, AMZN is positioned nicely as it has a strong global brand, a sophisticated distribution and logistics system, and the Prime service, which facilitates customer loyalty.

Bottom Line on AMZN Stock

In light of this, it should be no surprise that traditional retailers like Walmart (WMT) are feeling the pain. But even scrappy e-commerce startups are having a tough time taking on AMZN. For example, Jet.com is close to running out of cash and will need to quickly do another capital raise.

If anything, Amazon Web Services is providing a nice cushion of profits to allow AMZN to pursue a low-cost strategy with e-commerce. It’s an incredible advantage.

In other words, with AMZN stock, you get exposure to powerful markets like the cloud and e-commerce, but there are also other opportunities in streaming media and mobile.

Oh, and yes, the company has extremely powerful moats, making AMZN stock still interesting despite the run-up in price.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

More From InvestorPlace

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2015/11/amzn-stock-amazon-web-services/.

©2024 InvestorPlace Media, LLC