Amazon stock (AMZN 3.20%) has been a remarkable long-term performer. It’s had a remarkable 10-year performance, with a gain of 1,340% from March 31 to March 31. This is seven times more than the S&P 500’s 176% return.
A decade ago, $1,000 would have been worth $14,400 if it had been invested in the ecommerce and cloud computing giants. It has now been worth $2,760 to invest that grand in the broader marketplace.
Given the company’s Amazonian size it is natural for investors to wonder whether it can grow strong and continue to reward shareholders.
In my opinion, it can. Here are 10 compelling reasons to invest in Amazon stock.
1. The stock is a shortterm winner too
The Motley Fool places a lot of emphasis on long-term investing. However, the long run is made up many short-term periods. It’s nice to see that a stock can outperform in the short-term.
Amazon stock was up 5.5% from March 31 to 2020. However, the S&P 500 (including the dividends) has fallen 19.6% during this time due investors’ concerns about economic fallout from coronavirus.
2. Amazon’s ecommerce sales should experience a huge boost due to the pandemic.
Amazon’s first quarter ecommerce revenue is likely to see a huge boost from the COVID-19 crises. Online shopping is becoming more popular in the United States as well as around the world to avoid being exposed to the virus. Many people are spending more than usual on food, and household staples like toilet paper and paper towels to avoid disruptions in their supply chains. Additionally, some consumers purchase products they might not normally buy such as gloves or face masks in an effort to lower their risk of contracting the disease.
Amazon’s ecommerce revenue could suffer a negative effect in the second-quarter, or at the very least, this year. Because of economic uncertainty, many consumers have likely already cut back on their discretionary spending. This could mean that consumers will spend less on necessities and more on discretionary items.
3. Amazon should profit long term from the pandemic
Amazon should reap the benefits of the crisis long-term, regardless how it turns out in the near term. Many people who were not part of Amazon’s Prime loyalty program have joined to get free and faster shipping during the crisis. It’s likely that some people will still be larger online shoppers long after the pandemic is over.
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4. A founder leads the company.
Studies have shown that the stock of founder-led firms tends to outperform on the market. Amazon’s founder, Jeff Bezos in 1994, is a positive sign.
At the time of his most recent reported transaction (a stock donation) on March 1, he owned approximately 11.2%. His stock was worth more than $108 trillion as of March 31st. Bezos’ stake in the stock should give him plenty of incentive to make the company more valuable over time.
5. Amazon Prime membership is steadily growing
The number Prime members has been increasing at a rapid pace. Amazon announced that more than 150,000,000 Prime members were worldwide in January. In 2018, Amazon stated that it had more than 100,000,000 members in the world.
Prime members tend to spend more than nonmembers on the company site. According to one study the average member’s annual expenditure is twice that of nonmembers.
About Prime: A standard membership to the U.S. cost $119 per year or $12.99 a month. Amazon began upgrading Prime’s standard, free-delivery benefit last year from two days down to one. (Due to the increased demand for Prime’s standard free delivery benefit, delivery times are slower than usual recently. Members can also stream many free TV shows and movies.
6. U.S. sales online continue to surpass brick-and mortar sales
Amazon’s domestic market is seeing an increase in Americans shopping online. According to Census Bureau, 11.4% U.S. retail sales came from ecommerce in the fourth-quarter of 2019. Full-year 2019, 11% total retail sales were made online, up from 9.9%.
E-commerce will never be able to reach 100% of all retail sales. There’s still plenty of growth potential in the 11.4% figure.
7. The popularity of online shopping continues to rise around the globe
Amazon’s international business can also benefit from this shift to online shopping. E-commerce sales were 14.1% in 2019 compared to 12.2% in 2018. This figure is expected increase to 22% by 2023.
8. Amazon’s cloud computing is a profit-machine
Amazon Web Services (AWS), brings in the largest portion of the company’s profits. AWS accounted to just over 11%, but 67% for total operating profits in the fourth quarter of 2019.
AWS, which is the market leader in public cloud services, continues to grow quickly. In Q4, revenue increased 34% year-over year. Canalys predicts that cloud services infrastructure will grow 32% in 2020.
9. Its ecommerce business is not going to be dethroned
Amazon is the largest international online retailer. It is far ahead of the rest in the U.S., and making progress abroad. And it has such an impressive moat that any competitor to it will not be able match it.
Prime’s fast, free delivery of a vast array of products is the company’s biggest competitive advantage. Amazon’s vast network and large number of fulfillment centers makes this possible. To duplicate this network, it would take a king to pay. It is unlikely that a competitor would be able to duplicate the physical structures. However, Amazon’s level efficiency will take many years.
According to MWPVL International, there are currently 170 fulfillment centres in the U.S.; plans to add 51. It has 188 other such facilities. These numbers don’t include delivery stations, and other types facilities.
10. It has many other avenues for growth: advertising, smart home and healthcare.
There are many reasons why you might want to invest in Amazon stock. These include the company’s burgeoning smart-home business, centered on its artificial-intelligence-powered assistant Alexa, and its budding healthcare business, which includes its online pharmacy PillPack.
Aside from its ecommerce business, advertising revenue has increased and the company is expanding its private-label merchandise.