10 Reasons to Buy Amazon Stocks – And Consider Never Selling
Amazon.com (NASDAQ: AMZN) stock has been a fantastic investment. Along with crushing the market in the long run, shares of titanium e-commerce have also surpassed in recent years. During the three-year period ending September 3, this growth share has gained 132% – more than three times S&P 500 41.6% return.
Despite the mammoth size – $ 890 billion market capital makes the stock the third largest on the S&P 500 index behind Microsoft and Apple – there are countless ways the company can continue to grow .
Here are 1[ads1]0 reasons to buy Amazon shares and consider holding on forever – or at least for a very long time.
Image Source: Amazon.
1. It is led by a founder
Amazon is led by CEO Jeff Bezos, who founded the company in 1994. He is 55 years old, so investors can hopefully trust that he will be at the helm for at least a few more years.
A number of studies show that shares in basic managed companies tend to outperform the stock market, often significantly. A Bain & Company analysis, for example, found that the shares of US-based founder-led companies returned an average of 3.1 times more than non-founder-led companies from 1990 to 2014.
2. CEO has a lot of skin in the game
As of August 1, Bezos owned 57.78 million shares in Amazon. These shares are worth $ 102.6 billion from the stock's closing price on August 30, giving him a 11.7% stake in the company. With more than $ 100 billion of his money wrapped up in the Amazon, he is extremely incentivized to make decisions to increase the stock's value over the long term. Investors can feel confident that Amazon CEO's interests are in line with their interests.
3. Its intensive focus on the customer
Amazon's mission "is to be the most customer-centric company on Earth," and by most counts it seems to be going its way. The intense focus on keeping customers happy should continue to drive customers to spend more money on the site.
4. Its refill center network acts as an almost impenetrable moat
Amazon has a few important competitive advantages, even though its deepest and widest moat to keep competitors in check is its refill center network, which it has spent many years and a lot of money to build. The combined extensiveness and efficiency of this network is the main reason why Amazon is able to deliver packages quickly and cost-effectively across the United States and in many parts of the world. In short, it is key to the company's ability to fulfill its key Prime benefit: a one-day free delivery. (In recent months, Amazon has upgraded its standard delivery benefit from two days to one day.)
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There will probably be cost prohibitions end for any competitor to try to recreate the Amazon's distribution network geographic footprint. Even if a company was willing to spend billions on doing so, it would still likely lag behind in efficiency, as Amazon was an early player in using advanced technology, such as robotics, in its fulfillment centers.
5. It has a winning formula for financing expansion
Amazon Web Services (AWS), the company's cloud computing services business, has historically been extremely profitable. The company has used the cash generated from AWS to grow the empire. Having such a profitable business segment that is growing so fast is a great advantage that other e-commerce players – for example Walmart – do not have.
Putting some numbers next to this item, in the second quarter, AWS increased its sales by 37% year-on-year and accounted for just over 13% of Amazon's total sales, but it accounted for 68% of total operating revenue. It is the dominant player in the cloud computing service space. In 2018, it had a 32% market share of this $ 80 billion world market, which grew 46% year over year, according to Canalys market research firm.
6. Its Prime-centric business model is "sticky"
Now let's swing to another key component of Amazon's business model: the ultra-successful Prime loyalty program Prime makes Amazon's business model "sticky", which means it helps the company build close relationships to the customers. For $ 119 per year (or $ 12.99 per month), customers can subscribe to Prime, which gets them standard free two-day shipping (which is about to be upgraded to one day); streaming movies, TV shows and music; and other goodies.
Amazon had an estimated 101 million prime members in the United States as of December, according to a report by Consumer Intelligence Research Partners (CIPR). (The company does not reveal its Prime membership data by country, although it said in 2018 it had more than 100 million Prime members globally.) Prime members are especially valuable to Amazon because they spend more money on the company's side. They spend an average of $ 1,400 annually on Amazon, while non-Prime members spend about $ 600 per CIPR.
7. Online shopping has plenty of room for growth in the United States
E-commerce sales as a percentage of total US retail sales have grown steadily. Nevertheless, that figure is still "only" 10.7% from the second quarter of 2019. In US dollars, the US e-retail market was worth about $ 554 billion in the same quarter.
YCharts Data.
As the largest e-commerce player in the United States, Amazon is poised to continue to capture a great deal of future growth. In 2018, it captured almost half of online sales growth in the country.
8. E-commerce also has a lot of room for international growth
In 2018, online sales accounted for 12.2% of global retail sales, with this number expected to be 14.1% this year and now around 22% by 2023. Considering that global e – Sales of commercial products are estimated to be around $ 3.5 trillion in 2019, an almost 8 percentage point increase over four years equals a huge increase in market size (more than $ 276 billion) – and that's if total retail sales only remains static.
To put all the new dollars that should be able to grab within four years in perspective, $ 276 billion is more than Amazon's current annual e-commerce sales. In the second quarter, the company's global e-commerce revenue was $ 55.1 billion ($ 38.7 billion in the US and $ 16.4 billion internationally), which is equivalent to an annual run rate of about $ 220 billion. And again, this assumes that the overall global retail market is not expanding in size, which is extremely unlikely.
The fastest growing retail market is India, followed by Spain and China, according to Statista. Strangely, Amazon is engaged in a particularly big push in India, where it has 51 fulfillment centers, most in any country except the United States
9. It continues to expand into a wide variety of new arenas
Image Source: Getty Images.
Amazon continues to enter new peat. In 2007, it entered the delivery business through its Amazon Fresh service, which it has gradually expanded. And in 2017, it spent more than $ 13 billion to acquire Whole Foods, giving it a large presence in the organic grocery space with bricks and mortar and increasing the supply of grocery stores.
Last year, Amazon made two major acquisitions that underscore the ambitions of the vast healthcare and smart home markets. It threw its hat into the US pharmacy market at $ 400 billion a year when it spent $ 753 million in cash to buy online pharmacy PillPack, giving it the ability to quickly deliver prescription drugs across the country. It also lost $ 839 million in cash to acquire Ring, best known for its video door clocks. This acquisition boosted Amazon's smart home technology business, centered on its market-leading Echo line of smart speakers built in with its artificial intelligence (AI) controlled assistant Alexa.
10. Efficiency should continue to increase thanks to driverless vehicles
Over the next five years or so, fully autonomous vehicles are estimated to be legal throughout the United States. Investors can expect Amazon to be an early adopter of this technology for at least some parts of its delivery business, which should drive (pardon the pun) further increasing efficiency.
Furthermore, the company can eventually use drones for some lighter so-called deliveries to the last mile – or from its fulfillment centers to many customers' homes.
