Amazon Flywheel Moving at Full Speed

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By Gene Munster of Loup Ventures

Amazon has reached a $1 trillion market cap for two reasons. First, the company has a relentless focus on “delighting the customer.” Second, Jeff Bezos has investor support to run Amazon for the long-term at the cost of near-term profitability, allowing the company to explore new disruptable markets.

  • Retail. Over the past 11 years, unit growth has averaged 31% y/y and will likely finish slightly above 20% in CY18. This is evidence that the Amazon flywheel is moving at full speed. The company still has a massive opportunity to capture consumer wallet share over the next 10 years. They’ll do this by increasing online retail selection and delivery speed through improved logistics and by expanding into grocery, healthcare, video, gaming, and brick and mortar retail.
  • AWS is riding two waves: the secular shift to corporate cloud and increased defensibility as developers standardize on the platform.
  • Advertising has been a surprising piece of the story in the past year, now an $8B, highly profitable business, growing at ~50%.
  • The Stock. Revenue (growing at an average of 28% for the past 10 years, and expected to grow at 20-30% for the next several) is not a problem. The biggest wild card for AMZN shares over the next 1-2 years is investors’ willingness to accept depressed profitability. While this could weigh on shares in the near-term, we are believers in the Amazon story longer-term (3+ years).

Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

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