Analysis written by Vinay Soni
Amazon is a world leader in e-commerce having a market share of 37% and a world leader in cloud computing having a market share of 32%. The group also operates a marketplace activity, allowing individuals and distribution companies to conduct their purchase and selling transactions for goods and services. This article will delve deeper into if Amazon is a worthwhile investment in 2024.
Amazon focuses on Revenue diversification with 6 segments: the company strategically expands into different markets and continuously innovates to improve the customer experience for a diversified portfolio. Amazon is also Customer Centric Focus: Lowering prices, increasing the range of products, and faster delivery are all reasons why Amazon e-commerce has a strong economic moat and sits in a dominant market position with a 37.8% market share.
Amazon’s main driver of growth is diversification into the services sector; by focusing R&D on Amazon Web Services (AWS) the revenue segment continues to grow significantly with a compounded annual growth rate of above 20%. This growth is due to, again, Amazon putting their customers first by optimising and helping consumers reduce their bills by only paying for what they use. There is no upfront AWS cost and no need to estimate usage. Furthermore, Amazon provides low-cost migration services so existing infrastructure can transition to AWS.
Another company strategy is strategic acquisitions. Amazon regularly acquires businesses that align with improving consumer experience, thus causing revenue growth. For example, their recent acquisition of One Medical for $3.9 billion in July 2022 has given Amazon access to their quick modern technology-driven healthcare services. Amazon users now have access to 24/7 care with no extra cost, booking same/next day appointments in person or remotely, and request prescriptions easily.
However, Amazon faces tough competition in all its revenue segments. The company has many competitors in each segment attempting to diversify its revenue. Walmart has a significant market share in e-commerce due to evolving customer tastes, and Microsoft Azure currently has a market share of 24% in the cloud market and is predicted to have the largest market share in a few years. The company saw small profits recently due to heavy R&D and acquisitions; Amazon recorded a net loss of $bn in 2022 due to this. Furthermore, Best Buy and Staples offer prices matching Amazon and promotions which erodes Amazon's economic moat in prices. Ultimately, Amazon does not benefit from the inelastic demand (huge demand) from COVID-19 anymore therefore, its lead position in most segments is threatened.
Ultimately, Amazon’s stock price might already reflect its future growth as it is predictable, meaning less upward movement in Amazon’s share price leaving less room for high returns. However, considering the initial coverage Amazon could still be a could strong investment in 2024.
Want to learn more about investing?
Interested in investing but don’t know exactly where to start? Try the free Pluto app. Learn investing basics, and practise in a risk free environment with no real money. Find us on the Apple App Store.