Amazon Is More Than a One-Trick Pony
Since Amazon’s most significant source of revenue is its e-commerce business, it’s no surprise its numbers are down. Weakening economic conditions and record inflation rates are impacting consumer spending.
However, there is a silver lining when looking closer at Amazon’s latest financial report. While operating income within the company’s international segment was down, net sales increased by 15% to $127.1 billion in the third quarter.
AWS’s growth slowed slightly, making some investors concerned about the organization’s profitability. Yet, the cloud computing industry isn’t going anywhere. By 2030, it’s anticipated to be a $1.55 trillion annual opportunity.
Amazon is forecast to remain well-positioned as a leader in this space, and investors who weather the storm could be rewarded handsomely. AWS already offers more services and features than any other vendor, holding nearly 34% of the market share — more than Google Cloud and Azure combined. As spending on cloud computing grows, so will AWS. It has achieved an operating margin of over 30% with plenty of room for growth.
Advertising Is Another Solid Source of Revenue
Tech companies relying on advertising have taken a significant blow this year as they cut their marketing budgets — but not Amazon. It ranks as one of the fastest-growing digital advertising companies worldwide.
Amazon’s advertising segment is up 30% year-over-year, thanks to the traffic going to its flagship site. With over two billion hits a month, it’s an ideal place for sellers to market their products. The site is also starting to attract high-profile brands like Peloton Interactive. This partnership evolved based on the 500,000 existing monthly search queries for Peloton products, benefiting both parties.
Outside of Amazon.com, the company is building an impressive portfolio, including Amazon Prime Video. The streaming platform is now streaming the NFL’s Thursday Night Football. During the first broadcast, 15 million viewers tuned in, resulting in a record spike in Prime subscription sign-ups.
And then there’s Fire TV and Twitch, offering unique opportunities to branch out. Over time, advertising through these platforms could become a significant source of growth. Like cloud computing, digital advertising yields higher margins than retail.
As advertising becomes a larger portion of Amazon’s top line, investors can expect the company to become even more profitable.
Amazon Is a Buy
Amazon’s guidance suggests that there may be some rough patches during the company’s most crucial time of the year — the holiday season. These short-term headwinds have resulted in a sell-off, creating a potential buying opportunity for long-term investors. After all, shares have increased by 100,550% since the company’s IPO in 1997. Those who stuck by the company through thick and thin have turned $1,000 into over $1 million.
That level of growth won’t be seen again. However, Amazon operates in three markets, likely contributing to double-digit growth in the coming years. The final verdict is that Amazon’s future is full of promise despite near-term earnings challenges. Plus, its stock is currently on offer at a discount. Buy and hold for the next decade to be rewarded by Amazon’s expanding advertising segment, ongoing e-commerce innovation, and leadership in digital technology.