As an entrepreneur and small business owner, you may be interested in investing in Amazon (AMZN) stock to add to your investment portfolio. But before deciding whether to invest, you‘ll want to dive deep into understanding Amazon‘s financial performance, growth opportunities, and potential risks. As your small business consultant, I‘ve explored all angles of Amazon stock to help you make an informed decision.
A Financial Snapshot of Amazon‘s Remarkable Growth
While Amazon‘s share price fluctuates day-to-day based on market activity, the underlying financial performance of Amazon demonstrates tremendous growth. To illustrate, let‘s look at some key financial metrics over the past 5 years:
- Revenue
- 2018 Revenue: $232.9 billion
- 2022 Revenue: $502.5 billion (116% increase in 5 years)
- Net Income
- 2018 Net Income: $10.1 billion
- 2022 Net Income: $33.4 billion (231% increase)
- Free Cash Flow
- 2018: $19.4 billion
- 2022: $37.3 billion
These figures illustrate how rapidly Amazon has expanded its top and bottom line. Powering this growth is Amazon‘s booming e-commerce business, its market-leading AWS cloud computing segment, and new initiatives like digital advertising. Amazon has also seen consistent margin expansion leading to outsized profit growth.
The following chart provides a snapshot of AMZN‘s stock price vs. revenue growth over this 5 year period.
| Year | Revenue (billions) | Stock Price |
|---|---|---|
| 2018 | $232.9 | $1,500 |
| 2019 | $280.5 | $1,850 |
| 2020 | $386.1 | $3,100 |
| 2021 | $469.8 | $3,400 |
| 2022 | $502.5 | $100 |
Estimating Amazon‘s Market Growth Potential
In addition to historical growth, it‘s important to consider Amazon‘s total addressable market across its business segments when estimating its future potential:
eCommerce: Amazon currently commands 38% of US e-commerce spend and the global retail opportunity is upwards of $20 trillion. Major growth is still ahead despite Amazon‘s dominance today.
Cloud Computing: The cloud market is estimated to grow at a 15-20% CAGR over the next 5 years. As the #1 provider, AWS is positioned extremely well for rising cloud adoption.
Digital Advertising: In late 2021, Amazon overtook Microsoft to have the #3 US digital ad business behind Google and Facebook. As digital advertising continues to boom (expected to hit $526 billion globally by 2023), Amazon has barely begun monetizing its valuable user data and massive site traffic.
Combining current core business momentum with massive under-penetrated market opportunities gives investors strong confidence that the growth story remains intact for Amazon.
How Does Amazon Compare to Other Tech Giants?
As a leader in ecommerce, cloud computing, artificial intelligence, digital media, and more, Amazon competes and partners with the other FAANG technology leaders across its business verticals. Here is a snapshot comparison across some key metrics:
| Company | Market Cap | Revenue TTM | Net Income TTM | Price/Earnings |
|---|---|---|---|---|
| Amazon | $1.1T | $502B | $33B | 27x |
| Apple | $2.2T | $394B | $99B | 22x |
| Microsoft | $1.9T | $198B | $72B | 26x |
| Alphabet | $1.4T | $283B | $76B | 19x |
| $510B | $118B | $23B | 14x |
*TTM = Trailing 12 Months
While not the cheapest, Amazon is competitively valued relative to peers. And importantly, Amazon is positioned better than competitors to sustain strong growth based on its diversified business model and expanding market opportunities.
SWOT Analysis: The Pros and Cons of Buying Amazon Stock
Below I‘ve summarized some key strengths, weaknesses, opportunities and threats to analyze as you consider investing in this ecommerce juggernaut:
Strengths
- Proven track record of innovation and executing on big ideas
- Established, high-margin businesses to fund growth engines
- Early leader in multiple emerging, massive markets
- World-class leadership even with recent CEO transition
Weaknesses
- Often favors growth over profits
- Heightened regulatory risk and scrutiny
- Reliance on consumer spending cycles
Opportunities
- Retain/expand retail dominance via convenience
- Continued enterprise & government cloud adoption
- Leverage logistics network into new services
- Monetize increasing site traffic via ads
Threats
- Intensifying competition across most business units
- Post-COVID shifts away from ecommerce
- Missing on M&A opportunities
On balance, Amazon has many competitive strengths as an anchor long-term investment. But expect volatility in the stock price ranging from macroeconomic shifts to quarterly earnings overreactions.
My Small Business Perspective: To Invest in AMZN or Not?
Given Amazon‘s market leadership today and growth ahead across critical technology areas, I generally recommend having some exposure to AMZN in an investment portfolio. That said, as a small business owner, you also don‘t want to directly compete against Amazon. I‘ve seen many examples of entrepreneurs successfully partnering with Amazon even as they maintain their independence. There are paths to align and beneficially co-exist with this powerful force rather than be run over by it.
If you have excess cash in your corporate account, putting 5-10% of it into AMZN stock can be reasonable depending on your risk appetite. I would not advise overly concentrating your investments into any single stock. As Amazon continues innovating and expanding into new markets, its equity should appreciate over the long-run. But expect some serious volatility even if the long-term trajectory proves favorable.
Let me know if you have any other specific questions!
