A bright spot in an otherwise dismal economy was Amazon’s (NASDAQ:AMZN) stunning performance this year. After some initial hiccups in its supply chain at the start of the pandemic, the tech-giant picked up the slack and soon became a pandemic success story. Amazon stock followed.
In the first nine months of 2020, the company spent approximately $30 billion on its e-commerce business. This funding enabled the e-commerce behemoth to expand and streamline its operations, pushing Amazon stock to new highs.
However, many have questioned the durability of Amazon’s ongoing success, citing the eventual return to a pre-pandemic life as a major reason.
While this may be true, it’s worth considering that the economy we return to may not be the same as the one we left behind. As reported by The Wall Street Journal experts say that the stay-at-home economy is here to stay.
People have gotten over the initial hump of adapting to the tech-centric way of life which is now the norm for many. Ultimately, this also means that Amazon’s reigning success will continue even in a post-pandemic world.
Amazon Stock Will Thrive in a Post-Pandemic World
The tech sector has changed our way of life during the pandemic. Things like food and grocery delivery that were once considered a convenience are now a necessity.
In the retail sector, Amazon’s takeover this year is nothing short of spectacular. The e-commerce juggernaut became a trailblazer in the remote-economy, expanding its operations to meet increased demand. In its most recent quarter, revenue grew by 37% and net income tripled year-over-year to $6.3 billion.
Many view this surge in earnings as a short-term success story but there are many signs that point towards continued growth. For one, Amazon had a strong foothold in the retail sector long before the pandemic.
The change in shopping habits this year only strengthened its already growing dominance. Amazon now accounts for more than 40% of online spending in the U.S.
A second factor is the company’s efforts to get into grocery storefronts which is one of its most lucrative segments. The e-commerce giant is making headway in this space with cashier-less stores like Go and Fresh. As Amazon continues to grow its retail footprint with physical stores, it can compete directly with companies like Target (NYSE:TGT) and Walmart (NYSE:WMT).
Finally, Amazon’s foray into the cloud sector has also proven to be successful in the remote work environment. After its e-commerce business, the company’s cloud platform, Amazon Web Services (AWS) is one of its biggest revenue generators.
The tech giant is likely to see continued success in this segment as companies make the permanent shift to a remote workplace.
Despite its pandemic success, the company still has a lot of upside left. Amazon stock is trending at more than $3,000 but will go much higher.
The Ad Bucks Keep Rolling In
As businesses go online, digital ad spend has seen an exponential rise this year. Research shows that digital ads account for half of the money spent on advertising in the U.S. this year.
Although this rise can be attributed to the pandemic, there is a good chance that will continue in the future. For many companies, online advertising is a cost-effective option that allows them to target key customers and measure performance. Experts believe ad spend will grow by 12% to $240 billion in 2021.
Amazon’s large online footprint makes the company one of the key beneficiaries of this increase in ad spend. The accelerated shift to e-commerce has many companies putting their ad bucks towards online platforms. This allows them to reach the target customers in real-time- a win for both Amazon and the retailer.
Moreover, businesses increasingly favor Amazon over other online platforms given the purchase intent of the customer. The tech giant saw an exponential increase in online shopping and the number of Prime subscribers in 2020.
Both factors will contribute to increased ad spend in the future. On the flip side, spending on physical ads (magazines) is expected to decline by 8% in 2021. This lost ad revenue will result in greater gains for online advertising.
Amazon stock is a great investment in any economic environment. Although e-commerce may not see the same dominance as it did in 2020, Amazon still has a lot of room to grow. The stock is a great bet regardless of what the future holds.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.
