Investors who have held Amazon‘s (NASDAQ: AMZN) shares for a long time are sitting pretty, as the company has delivered life-changing returns over the past two decades. It now sits as one of the largest corporations in the world with a market cap of $2.6 trillion. But you don’t need a time machine to still profit from Amazon, as the tech leader has attractive opportunities that could allow it to post outstanding returns, once again, over the next 20 years. The company’s CEO, Andy Jassy, recently emphasized Amazon’s growth runway in a letter to shareholders. Let’s discuss the implications for investors.
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Amazon is a major player in at least two markets. First, there is e-commerce. That’s arguably what Amazon is best known for, and it has a leading market share in this space in the U.S. The company is also the top player in cloud computing, holding the number one position globally. Some might think that both of these industries are already deeply penetrated. Online shopping seems ubiquitous nowadays, and corporations have moved to the cloud in droves, considering the many benefits it offers.
However, appearances can be deceiving. The truth is that e-commerce and cloud computing are still arguably underpenetrated. That’s the point Jassy emphasized. To quote the man himself:
Our retail business is now approaching $600 billion in topline, yet roughly 80% of global retail sales still happens in physical stores. That will change. AWS is at a $142 billion revenue run rate, and yet 85% of global IT spend remains on-premises. This will change.
Jassy said this after expressing his optimism about the company’s future.
Now, even given these opportunities, can Amazon remain the leader in these niches and capitalize on their growth over the next two decades? Yes, it can, and here’s one central reason: it has built a wide moat from multiple sources. Let’s name several of them. First, there is the company’s brand name that customers immediately recognize as one of the go-to platforms for online shopping. Second, Amazon has spent small fortunes building the infrastructure necessary to support its e-commerce ambitions, which includes offering customers free, fast shipping on millions of items.
Third, Amazon benefits from network effects in its e-commerce business, as merchants and consumers increasingly look for one another on the platform. And lastly, the company’s cloud division boasts high switching costs. There will be competition, to be clear, but Amazon has built a business that is more than strong enough to withstand it while still performing well over the long run. What does all this mean for investors? The company still has attractive long-term prospects.