There’s a lot going on at Amazon (NASDAQ: AMZN). It’s branched out into so many businesses that it’s not easy to keep track of what’s new.
One thing that’s clear is that Amazon is an amazing company with many opportunities and a proven track record of success. But where will the company be a year from now?
King of e-commerce
Amazon’s core business is still e-commerce. Even though there’s a lot more than an online shopping hub today, the e-commerce business is still Amazon’s dominant sales generator and the support system for everything else that happens in the company.
Amazon lost some market share since before the pandemic. Anyone and everyone who ran a business got online when physical stores were closed, taking a small piece of Amazon’s market share. But it hasn’t made a dent in Amazon’s e-commerce business, which continues to grow. The pie’s just a lot bigger now.
Amazon accounts for a whopping 38% of all U.S. e-commerce, according to Statista, and its closest competitor Walmart has only 6%. So for the near future, Amazon has no real competition.
But Amazon isn’t resting on its laurels. It continues to upgrade its various platforms, add products, and improve delivery times and recently changed from a national to a regional logistics network. It also added more same-day facilities.
The number of items delivered the same day or overnight increased 65% year over year in the 2023 fourth quarter. As shoppers get more items delivered quickly, they rely on Amazon for more of their shopping needs, boosting sales. CEO Andy Jassy said Amazon added “tens of millions” of new products to the Amazon platform, with brand names like Coach and Beyonce’s Renaissance tour merch.
All of these actions extend Amazon’s moat and make it likely that customers will choose it for their needs. In a year from now, the company will likely have millions more products and faster delivery times, and its e-commerce market share could be climbing higher.
Head of the cloud
Amazon has also turned its cloud-computing business, Amazon Web Services (AWS), into the leading cloud company in the country. AWS accounts for 31% of all cloud business, according to Statista.
Even though sales growth has been slower in the inflationary environment, it’s still in the double digits and expected to stay that way before eventually moving higher. Jassy said client budgetary measures are loosening up, and AWS is forming new and expanded deals with companies like Amgen and Salesforce.
AWS launched a barrage of new artificial intelligence (AI) services to offer better tools for AWS customers, and it’s right in the thick of the generative AI revolution. That will help it keep its top spot and continue to grow.
AWS is a high-margin business that generally accounts for an outsized portion of Amazon’s total operating income. The segment’s revenue increased 13% year over year in the fourth quarter, but operating income increased 38% to $7.2 billion, or 54% of the total.
In one year, AWS sales could accelerate. It will probably keep its market share if not increase it, inking more deals and innovating with new technology, especially AI.
Advertising, AI, and more
Amazon’s advertising business is fairly young, but it’s become its fastest-growing segment, growing 27% year over year in the fourth quarter. It’s a no-brainer for advertisers, who can reach Amazon’s hundreds of millions of global customers while they’re already shopping.
The company’s best-in-class AI tools help pinpoint which customers are looking for which products, making precise matches and increasing conversions. This is a high-margin business with momentum and should continue to be fast-growing and lucrative.
The online retailer is using AI across its businesses and is well-positioned to benefit from advances in AI over the next few years. It’s also working on other businesses, such as healthcare, and its streaming business is booming, competing with the leading premium streamers.
Amazon launched an ad-supported tier like its competitors, or actually the reverse — it has started to charge Prime Video customers extra to continue with ad-free content. The default option for Prime subscribers is ad-supported. The company owns MGM Studios and creates theater-worthy films to populate its streaming channels, in addition to Amazon originals and licensing deals with third-party studios.
The company’s revenue has started to accelerate again after being under pressure last year, and operating income is at an all-time high. I’d bet on Amazon experiencing more growth and extending its dominant position in another year.
On top of that, the company is known for surprising followers with new, innovative, and unexpected options. This time next year, there could be some interesting new happenings at Amazon.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Salesforce, and Walmart. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.
Where Will Amazon Stock Be in 1 Year? was originally published by The Motley Fool
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