Amazon [NASDAQ: AMZN] is one of those stocks that people just love. The company seems to be everywhere, from Whole Foods to dog food, media devices to smart speakers, and everything else under the sun – and that’s not even mentioning the company’s web services.
With so many irons in the fire, there are lots of ways that Amazon can make money.
Amazon E-Commerce Earns the Company Billions
Amazon has been profitable for 15 straight quarters, and it is still growing.
The company’s core North American business has almost doubled since 1Q17, with no signs of slowing down.
“Shoppers will spend $484 billion globally on Amazon this year, up 26 percent from 2018,” writes Bloomberg, “and the Seattle-based company will capture more than half of all online spending in the U.S.”
Amazon’s strategy of late has been to use the low-margin business of online retail to attract shoppers, ultimately boosting its devices business and sales of other Amazon-owned goods.
The company has also been pushing into advertising, content creation, and web services. These areas have much higher profit margins than retail.
Amazon AWS is Highly Profitable
Amazon Web Services (AWS) is a service offering geared towards companies, governments, and schools as well as startups. Amazon AWS is number one in cloud computing, topping even Microsoft [NASDAQ: MSFT].
For the right price, Amazon’s AWS can handle all of your computing, database, and storage needs. And that’s just the beginning because AWS also includes blockchain, game tech, Internet of Things (IoT), customer engagement, robotics, machine learnings, security, and more.
The AWS segment is highly profitable, and it is growing. In 1Q19, sales at Amazon’s AWS grew 45% to top $7.4 billion for the quarter.
Amazon Advertising Revenue Is Rocketing Up
When investors talk about Amazon, they are usually speaking about the number of Prime subscribers, the success of Amazon devices, grocery, or AWS, but Amazon is making serious headway in another area – advertising.
According to Piper Jaffray analyst Michael Olson, Amazon’s advertising income will exceed AWS by 2021.
He predicts that Amazon Web services will bring in $15 billion in 2021 while advertising will pull $16 billion the same year.
“Being the world’s largest product search engine has its advantages,” explains Olson, “and Amazon is starting to leverage them.” The online retailer can learn things about its customers that most companies simply cannot.
From the books they read to the foods they eat, their technology preferences to the clothes they wear, Amazon has data on all of it – and that information is valuable to companies trying to target specific audiences.
Amazon Is Growing Fast Globally
In 1Q19, Amazon’s losses from its international operations reached $642 million and the revenue outlook remains weak for much of its efforts.
While Amazon CFO Brian Olsavsky blamed depressed international revenues for the period on currency exchange rates, the online retail giant is going to need to be careful where it tries to grow.
Take India for example. Amazon [NASDAQ: AMZN] has been aggressively targeting business there but changing laws on foreign-owned companies could put a dampener on that.
Due Diligence is Important, Even for Amazon
The giant from Seattle is extremely agile, and it has so much customer loyalty. Between Kindles, Echoes, and Prime membership, Amazon has a strong funnel for building revenue, but nothing is guaranteed.
The online retailer could miss the mark. It has before. Remember the Fire Phone? Amazon only sold 35,000 units and lost somewhere around $170 million on the venture. Ouch!
The worst part is that the Fire Phone wasn’t even a bad device.
Some of the technology that product incorporated was novel at the time, like multiple cameras and depth sensing, has since become standard.
It just didn’t work, and it is not the company’s only mishap.
All it would take is for one catastrophic misfire or an alternative supplier to come in with the right product offerings and lure Amazon’s customers away.
It may not be likely, but it could happen. Investors need to be extra critical when looking at marquis stocks like this because returns are not guaranteed but it is usually priced at a premium.
Could Amazon Rise To $2,200 Per Share?
Amazon has a 52-week range of $1,265.93 to $2,050.50. One-year target estimates are predicting that the company will reach $2,138.39 in the next year alone, but that is just an average.
Some analysts are predicting that Amazon will reach $2,700 per share by this time next year.
Almost universally, experts agree that Amazon is a good buy and that only big things are ahead for the company, but there are still those naysayers who think that Amazon [NASDAQ: AMZN] may have run as far as it is going to go, at least for the foreseeable future.
You will have to decide what you think about Amazon’s future for yourself. In any case, with so much room to run, it’s probably best to buy Amazon on a dip if you are going to open a position in the company.