Amazon.com Inc (NASDAQ: AMZN) is without a doubt one of the most recognizable retailers in the world at this point. But the crazy thing is, its e-commerce operations aren’t really even the money maker that keeps the company alive.
I know that sounds crazy, but the fact is, according to Statista in 2017, 89% of AMZN profits came from the company’s cloud services division, Amazon Web Services (AWS), the largest cloud company in the business.
Yet, while it generated most of the company’s profits, the e-commerce ruled the revenue stream.
This is one of those interesting things that investors generally don’t think about too much, but analysts do.
The way AMZN has operated since its inception has always been counter to the way most ‘big’ companies operate. Instead of taking their profits and sticking them in the bank or doling out some as dividends to shareholders, AMZN has plowed all the money it makes back into new and existing businesses.
For many years, this practice meant Wall Street would hail or scorn AMZN stock as quarterly numbers were revealed. The institutional thinking was, if you’re not planning for a rainy day, then there’s going to be hell to pay when the rain starts — and you don’t want to be invested when the rain starts.
But over the years, Amazon’s success has shown that this new model works, if run by the right people.
It can run its e-commerce operations at razor thing margins and continue to expand, and pump up the cash flow, because it has AWS back stopping the earnings.
AMZN is also very efficient about launching new ventures. The Whole Foods acquisition was unique because it was a major move that happen externally, rather than internally.
For example, most of the AMZN spinoffs come from internal planning, not outside acquisitions. And it has been interesting to watch how it has managed to build Whole Foods into its universe. While it has been challenging, and has yet to live up to its full potential, it is functional and productive.
More typical of the AMZN way is its new ‘frictionless’ brick and mortar stores it recently launched. Or the store in NYC that sells 4- and 5-star rated items.
The fact is, the US economy is about 70% dependent upon consumer spending to keep it going. And AMZN has a number of ways to make sure that it is finding the consumer now and in the future. And it’s not scared to try new ideas to make it happen.
The Bottom Line for AMZN Stock in 2019
While AMZN stock has lost 14% in the past 3 months, the fact is that it’s still up 45% year to date. Granted, it’s a bit expensive, selling at P/E of 95, but in this kind of market that’s the premium for the kind of outsized growth a company like AMZN has provided investors for years.
It’s also why AMZN remains an A-rated stock in my Portfolio Grader.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.