Here’s a simple thesis on Amazon.com (NASDAQ:AMZN) stock: So long as Amazon keeps disrupting industries, AMZN stock will keep heading higher.
Obviously, the first disruption happened in the retail world. Amazon pioneered e-commerce, stole significant market share from traditional retailers, and is now one of the world’s largest retailers.
The second disruption happened in the IT services world. Amazon pioneered cloud services, stole significant market share from traditional IT players, and is now the world’s largest cloud company.
The third disruption is currently happening in offline retail. Amazon is attempting to pioneer omni-channel commerce in the grocery sector. If history repeats itself here, Amazon will steal significant market share from traditional grocers and will eventually become one of the world’s largest grocers.
AMZN stock heads materially higher during each one of these disruptions because each disruption significantly expands Amazon’s addressable market, lengthens the long-term growth narrative, and boosts the financials. Indeed, successive disruptions are what has allowed Amazon to maintain a roughly 20%-plus revenue growth rate for over a decade now.
These disruptions won’t stop anytime soon. If anything, the pace of Amazon disruptions is only picking up. As the pace of these disruptions accelerates, AMZN stock could head significantly higher, even from today’s elevated levels.
Here’s a deeper look.
Amazon Will Keep Disrupting
Type in relentless.com. It will redirect you to Amazon.com. That is because way back in the day when Amazon was just an idea, founder Jeff Bezos thought of naming his company Relentless.
Instead, he settled on Amazon. But, to anyone familiar with the company, Amazon and relentless are synonymous. Bezos and company have been nothing short of relentless in their pursuit of dominating multiple markets, from online retail to video streaming to cloud services to offline retail.
This relentless pursuit won’t stop now. Instead, it looks like Amazon is about take that pursuit to the next level.
Over the next several years, it looks like Amazon is going to:
– Disrupt the pharmaceutical market through creating an online pharmacy in an attempt to take market share from Walgreens (NASDAQ:WBA) and others
– Disrupt the logistics market through creating its own package-delivery system in an attempt to take market share from UPS (NYSE:UPS) and others
– Disrupt the financial services market through issuing small business loans, checking accounts and credit cards in an attempt to steal market share from Bank of America (NYSE:BAC) and others
– Disrupt the digital advertising market through monetizing its already hugely trafficked website in an attempt to take market share from Facebook (NASDAQ:FB) and others
– Disrupt the movie market through acquiring a movie theater chain in an attempt to steal market share from AMC (NYSE:AMC)
Whether Amazon follows through on the aforementioned disruptions is still unclear. But, if track record stands for anything, then Amazon will continue to be relentless and will likely aggressively pursue several of those disruptions.
As such, the era of Amazon disruption is far from over. Instead, we may only be at the tip of the iceberg.
Amazon Stock Will Keep Powering Higher
So long as Amazon keeps disrupting, AMZN stock will head higher.
Why? Because each disruption gives Amazon so much more firepower to grow in the long term and keep growth rates high while mature businesses slow.
For example, Amazon’s online retail business has been naturally slowing due to scale. But, super-charged cloud growth helped offset slowing e-retail revenues. Now, cloud growth is slowing somewhat, but the retail business has reaccelerated growth thanks to offline retail expansion.
This dynamic will persist. Once cloud and offline retail growth die down, digital advertising growth will be there to pick up the slack. Once that dies down, pharmaceutical and logistics expansion will reinvigorate growth. That will be followed by financial services growth and entertainment growth, and so on and so forth.
In other words, Amazon keeps growing because it doesn’t define itself as exclusively an e-commerce company. Instead, this is a technology company with its finger tips in essentially every industry that matters.
Consider that AMZN stock has a market cap of $900 billion. But, between the global advertising, logistics and pharmaceutical markets alone, Amazon is looking at potential addressable market expansion of $10 trillion-plus, on top of $20 trillion-plus from retail and $200 billion from public cloud.
Put it all together, and Amazon’s addressable market is $30 trillion-plus, and growing. That doesn’t even consider the financial services market.
All the sudden, the $900-billion market cap for AMZN stock doesn’t look so big.
Bottom Line on AMZN Stock
So long as Amazon keeps disrupting, AMZN stock will head higher. There comes a point where valuation is a legitimate concern for this business. But, so long as Amazon keeps disrupting, that point isn’t below $2,000.
As of this writing, Luke Lango was long AMZN, FB and AMC.