Amazon.com (NASDAQ: AMZN) stock has been a wonderful long-term performer. Over the 10-year period until March 31, it gained 1,340% – more than seven times the S&P 500the yield of 176% over this period.
In other words, $ 1,000 invested in the e-commerce and cloud computing giant ten years ago is now worth $ 14,400. This large investment in the broader market turned into $ 2,760.
Given the Amazon’s size of the company, it is natural that investors wonder if it can continue to grow robustly and continue to generously reward shareholders.
Indeed, this can, in my opinion. Here are 10 reasons to buy Amazon stocks and consider keeping them for the long term.
1. The title is also a short-term winner
Although the Motley Fool focuses on long-term investing, the long term is made up of many short-term periods. So it’s good to see that a stock is a short-term outperformer.
In 2020, the title of Amazon is up 5.5% as of March 31, while the S&P 500 (including dividends) is down 19.6% over this period due to investor concerns about the economic fallout. of the coronavirus pandemic.
2. The pandemic should give a strong initial boost to Amazon’s e-commerce revenues
The COVID-19 crisis is about to at least boost Amazon’s e-commerce revenues in the first quarter. More and more people in the U.S. and around the world are shopping online to limit their exposure to the virus. In addition, many people spend more money than they normally would on food and everyday items (such as toilet paper and paper towels) because they fear potential interruptions in supply chains. . In addition, some consumers buy products that they don’t usually buy, such as gloves and face masks to reduce their risk of being infected.
In the second quarter, or at least sometime this year, the net effect of the pandemic on Amazon’s e-commerce revenues could be negative. Many consumers have probably already started to cut their discretionary spending due to economic uncertainty. At some point, this decline may be greater than the increase in spending on necessities.
3. The pandemic should benefit Amazon in the long term
Whichever way the short term works, Amazon should take advantage of the long term crisis. Certainly, many people who weren’t members of Amazon Prime’s loyalty program before the pandemic became members in order to get free and faster delivery during the crisis. Long after the end, some people will likely continue to be heavier online buyers than before the pandemic.
4. The company is headed by a founder
Studies have shown that the stocks of companies led by their founders tend to outperform the market. So it’s good that Amazon is headed by Jeff Bezos, who founded it in 1994.
He owned about 11.2% of the company, on the date of his last announced transaction (a gift of shares) on March 1. Its stock was worth more than $ 108 billion at the close of the market on March 31. This participation should provide a lot of motivation for Bezos to run the business so as to increase the value of the stock in the long term.
5. Membership in Amazon Prime is growing rapidly
The total number of Prime members has increased to a nice clip. In January, Amazon announced that there are more than 150 million Prime members worldwide. In 2018, the company said it has more than 100 million members worldwide.
This growth is important because it has been found that Prime members spend more money than non-members on the company site. One study found that average members’ annual expenses were more than double that of average non-members.
About Prime: A standard subscription in the United States costs $ 119 per year, or $ 12.99 per month. Last year, Amazon started upgrading Prime’s standard free shipping advantage from two days to one day. (Of course, delivery times have suffered recently due to the spike in orders caused by a pandemic.) Members can also stream a wide range of free movies, TV shows and music, among other benefits.
6. Online sales in the US continue to divert market share from brick and mortar sales
Americans increasingly prefer to shop online, which creates a tailwind for Amazon’s internal affairs. In the fourth quarter of 2019, e-commerce sales accounted for 11.4% of all retail sales in the United States, according to the Census Bureau. For 2019, 11% of total retail sales were made online, compared to 9.9% in 2018.
Online sales will never reach 100% of all retail sales. But certainly, this figure of 11.4% has a lot of room for growth.
7. Online shopping continues to gain popularity around the world
Amazon’s international operations are also poised to continue to benefit from this global shift to online shopping. In 2019, e-commerce sales represented 14.1% of all retail sales worldwide, compared to 12.2% in 2018. This figure is expected to reach 22% in 2023.
8. Amazon’s cloud computing service is a for-profit machine
Amazon Web Services (AWS) reports most of the company’s profits. In the fourth quarter of 2019, AWS accounted for just over 11% of total revenue, but 67% of total operating profits.
AWS, the market leader in public cloud space, continues to grow at a rapid pace, with sales up 34% in the fourth quarter. Growth is expected to remain strong, as the cloud services infrastructure market is expected to grow 32% in 2020, according to Canalys.
9. Its e-commerce activity will never be dethroned
Amazon is the largest online retailer in the United States and around the world. It is so far ahead of the American market (and has made good inroads abroad) and has such a wide divide that it is very unlikely that a competitor will overthrow it.
The company’s main competitive advantage is Prime’s free and rapid delivery of a wide range of products. This basic advantage is only possible thanks to Amazon’s vast network of extremely efficient and massive treatment centers. It would cost a king’s ransom to duplicate this network. And even if a competitor managed to replicate the physical structures, it would probably take several years to reach the level of efficiency of Amazon.
The company currently has 170 treatment centers in the United States, and another 51 are planned, according to logistics consultant MWPVL International. There are 188 such facilities outside the country. These figures do not include delivery stations and various other types of facilities.
10. Has much more potential for growth: smart home, healthcare, advertising, private label products
There are many other reasons to buy Amazon stocks. These include the burgeoning smart home business, centered on Alexa, its artificial intelligence assistant, and its budding health business, which includes its PillPack online pharmacy.
In addition, in its e-commerce activity, advertising revenues are increasing and the company is increasing the number of private label items it sells.