Since its advent in the 1990s, Amazon has proven to be one of the greatest growth stories in American corporate history. It has also made many of its long-term shareholders incredibly wealthy, delivering some of the strongest compounded returns to be found anywhere in the US stock market.
So who are the richest investors in Amazon now? Several billionaires, including Israel Englander, Chase Coleman and Ken Griffin own large stakes in Amazon. Of course, Jeff Bezos still owns 1.26 billion shares.
What attracts these highly successful investment minds to Amazon and does the company still have a value proposition to offer at today’s prices?
Amazon’s eCommerce Dominance Is Still Unbeatable
At the core of Amazon’s business is its unparalleled eCommerce empire. In 2023, Amazon accounted for 37.6% of the online retail market in the United States.
Walmart and eBay, the two closest competitors, trailed far behind at 6.4 and 3.6%, respectively. Much of this market dominance can be attributed to Amazon’s universal brand recognition among consumers. Roughly 148 million Americans are Amazon Prime members, and far more use Amazon as non-members.
Aside from its brand recognition as the go-to eCommerce option, Amazon’s moat is also protected by its vast logistical network. Amazon maintains over 70,000 vehicles and over 175 fulfillment centers, giving it an almost unmatched ability to move freight and deliver orders quickly.
Cloud Computing Is Still Boosting Growth
In addition to being the largest eCommerce company in the world, Amazon is also the world’s leading cloud infrastructure provider.
Amazon Web Services (AWS) accounts for 31% of this market. Microsoft Azure is in second place and gaining ground, especially as more businesses begin to explore Microsoft’s suite of integrated AI tools. Even with this tailwind, however, Microsoft only makes up 24% of the cloud infrastructure market.
The power of AWS’ growth was on full display in Amazon’s FY2023 earnings report. Though AWS contributed just $90.8 billion of Amazon’s overall $574.8 billion in revenues, the cloud segment was disproportionately responsible for Amazon’s operating income. Of the total operating income of $36.9 billion for the year, $24.6 billion was attributable to AWS.
Related to the success of the cloud computing business is Amazon’s ongoing investment in AI. In order to compete effectively with Microsoft, the company has begun creating its own artificial intelligence systems. Critically, Amazon is also investing in its own chips, giving it a greater degree of vertical integration and potentially allowing it to achieve lower overall costs.
Earnings Growth Could Be Back With a Bang
2022 was a choppy year for Amazon’s earnings, and the company lost money in three out of that year’s four quarters.
2023, however, proved much more promising from an investor perspective. The company ended the year with a total earnings per share of $2.90, and each successive quarter was an improvement over the last.
The real story, however, is in the company’s expected forward growth. In the coming 3-5 years, analysts foresee further earnings growth of about 24.3%.
Using the current trailing 12-month earnings of $2.90 per share as a baseline, this would imply EPS of up to roughly $8.60 on the 5-year horizon.
At the moment, Amazon’s trailing 12-month net margin is a somewhat sparse 5.3%. As such, Amazon has considerable room to raise its earnings if it can increase its efficiency and bolster these somewhat low margins.
Prices Are High, but the Value Could Be There
As a dominant company that’s still growing at a respectable rate, Amazon commands a premium valuation. Due to the high level of expected future earnings growth, there is an argument to be made that the price could still be attractive for investors.
Amazon trades at 43.7x forward earnings and 23.5x cash flow. Its price-to-sales and price-to-earnings-growth ratios, however, are somewhat more reasonable at 3.2 and 1.6, respectively.
The view that Amazon shares still have room to run seems prevalent among Wall Street analysts. The current median price forecast for the stock is $205, suggesting a possible gain of over 17.5% compared to the last closing price of $174.12. Additionally, AMZN holds an overwhelming buy rating from analysts.
This bullishness on Amazon and its value has resulted in a high rate of institutional ownership. Institutional investors own over 57% of Amazon. Combined with a 12.7% rate of insider ownership, this accounts for well over two-thirds of Amazon’s outstanding shares.
A final point regarding Amazon’s value is the fact that the company has begun reducing its debt. With a debt-to-equity ratio of just 0.3, debts aren’t a massive problem for Amazon to begin with.
Long-term debt has risen from under $25 billion to a peak of over $67 billion. The total has since eased to about $58 billion, showing that Amazon is actively paying off its loans and improving the state of its balance sheet.
Legal Challenges Pose Threats
In September of last year, for instance, the Federal Trade Commission brought a suit against Amazon, arguing that the company had illegally engaged in anti-competitive practices in order to build and maintain an effective monopoly.
High turnover rates could also present an issue for Amazon. Even with attractive stock incentives, Amazon has an unusually high turnover rate throughout its business. This could make it difficult for the company to attract, retain and promote talent.
A final long-term issue for Amazon is its diminishing popularity among the youngest consumers. A recent survey found that 60% of Generation Z respondents believed Amazon was too powerful, and nearly half were actively trying to reduce their spending with the company.
Is Amazon Still a Good Buy?
Even though there are some long-term risks, Amazon’s business appears very strong at the moment. With dominant positions in both eCommerce and cloud computing, it’s difficult to see the company’s growth story ending anytime soon.
Assuming that Amazon can achieve the kind of earnings growth analysts predict, it seems quite likely that the stock will continue to be a good long-term performer for several years to come.
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