E-commerce giant Amazon has delivered mind-blowing returns for investors over the past decade thanks to its rapidly growing business across multiple sectors.
According to the original analysis, a $10,000 investment in Amazon stock back in 2013 would be worth about $87,600 today, representing a 776% return that crushes the broader market.
Let’s take a closer look at how Amazon achieved this incredible growth and whether the stock remains a compelling buy today.
Diversified Business Drives Revenue Growth
The key driver behind Amazon’s surging stock price has been the company’s staggering revenue growth in recent years. Amazon’s sales have skyrocketed from just $74.5 billion in 2013 to over $514 billion in 2022 – a whopping 741% increase in under a decade.
Remarkably, even amidst the challenging economic conditions in 2022 and 2023, Amazon has continued to grow revenue at a double-digit clip, with sales up 10% year-over-year in the first half of 2023.
This tremendous growth is fueled by Amazon’s diverse business units, each capitalizing on long-term secular trends in e-commerce, cloud computing, and digital advertising.
E-Commerce Lead Shrinks But Remains Dominant
Amazon’s core e-commerce segment, which includes online and physical stores, accounted for 63% of total revenue in Q2 2023. While its contribution has shrunk as other units expand, e-commerce remains the profit engine for Amazon.
The company dominates e-commerce thanks to its unmatched logistics network enabling fast delivery, its hit Prime membership program, and the enormous selection and convenience Amazon offers shoppers.
With e-commerce still representing just 15% of total US retail spending, Amazon has plenty of room to grow its market share.
Cloud Computing Growth Slows But Long-Term Potential Intact
Amazon Web Services (AWS), the company’s cloud computing segment, has been one of its fastest growing units, but revenue growth slowed to just 12% year-over-year in Q2 2023 as businesses cut cloud spending amidst economic uncertainty.
But the long-term outlook remains strong, as the shift from on-premises IT infrastructure to the cloud is an enduring trend.
The global cloud computing market is forecast to reach $1.6 trillion by 2030, up from $494 billion in 2022. AWS is the clear market leader today and well positioned to capitalize on the industry’s growth.
Rising Digital Ad Business Offsets Other Pressures
While retail and cloud growth have slowed recently, Amazon’s digital advertising division is picking up steam. Ad sales surged 22% year-over-year to $10.7 billion in Q2 2023, making Amazon the third-largest digital ad platform behind only Google and Meta.
Strong growth in advertising revenue helps offset softness in other units as the company diversifies its income streams. Amazon’s ad business should continue growing rapidly as more marketing shifts online.
Growth Forecast Supports $1.3 Trillion Valuation
Despite already massive scale with over $500 billion in trailing 12-month revenue, analysts expect Amazon will continue growing revenue at double-digit rates. Consensus forecasts call for 11.4% annual revenue growth from 2022 through 2027. While future growth may require geographic and segment expansion, Amazon’s core units still have room to run.
Additionally, Amazon stock trades at a reasonable 2.5x price-to-sales ratio, well below its 10-year average valuation of 3.1x. This discounted valuation helps support the market cap of over $1.3 trillion. For a company projected to grow revenue at such a robust pace, the stock may still be attractively valued.
Key Advantages Sustain Growth Trajectory
Several competitive advantages have enabled Amazon’s success over the past decade and should allow the company to maintain strong growth:
- Massive distribution infrastructure and logistics network that is nearly impossible for competitors to replicate.
- Enormous selection of products and digital content that creates powerful network effects.
- Industry-leading cloud computing platform with deep customer trust and integrations.
- Willingness to invest aggressively for long-term market leadership.
- Ability to leverage data from e-commerce and AWS customers to improve all business units.
- Talented workforce and coveted brand that attracts top talent.
While no company can sustain growth indefinitely, Amazon is poised to continue capitalizing on key trends in technology and consumer behavior.
The company’s disciplined investments and customer obsession provide a solid foundation for many years of growth to come.
Investors who missed out on the early rise of Amazon stock still have an opportunity to benefit from the company’s next decade of expansion.