Four Reasons Amazon Stock Will Keep Doubling Every Three Years – Forbes
I was wrong about Amazon.
In July 2015, I predicted its shares would double by 2018. Amazon — in which I have no financial interest — got there nine months ahead of schedule. Back then a share of its stock could be had for a mere $443 and as of April 28 they were worth $954 — having hit $886 on March 31.
I think it’s the world’s greatest company and that its shares could keep doubling every three years.
Before getting into why, let’s look at its latest financial report — which reveals that generating more than $100 billion in revenue is no impediment to growing consistently at more than 20%.
Amazon’s first quarter 2017 sales grew 23% to $35.7 billion — $400 million above analyst expectations while profit popped 41% to $724 million. Amazon forecasts more to come — operating income in the current quarter ranging from $425 million to $1.08 billion on net sales between $35.3 billion above $37.8 billion — (analysts project sales of $36.9 billion in the current quarter), according to Bloomberg.
In my book, what makes Amazon the world’s greatest company is its disciplined growth strategy that taps five dimensions of growth as follows:
- Customers. Amazon started off selling books to consumers and now it sells many more things — from movies to detergent — to consumers (it had 300 million user accounts as of February 2017) and computer services to companies.
- Geography. Amazon begin in the U.S. and now has offices in 30 countries — suggesting to me that geography offers significant growth potential. And it has enjoyed big growth in India where its Prime selection has increased “75% since in launched there in July 2016 and fulfillment capacity for sellers is up 26%,” according to CNBC.
- Products. Through internal development and acquisitions, Amazon continues to widen its product and services offerings — it sold 368.8 million as of December 2016.
- Capabilities. Amazon used to operate websites but it has since gotten good at logistics — operating warehouses with at least 45,000 robots in 20 fulfillment centers from its 2012 Kiva acquisition and delivery networks — to fulfill orders fast at low prices.
- Culture. Bezos’s over-riding value is to keep Amazon from becoming irrelevant – what he calls Day 1. To that end, he has created a culture that attracts talented people and pushes them hard to create a great ever-greater customer experience.
There are four reasons that Amazon is the world’s greatest company.
1. Bezos is a startup CEO who runs a huge public company
Bezos is the leader of the pack of large public companies — including Alphabet, Facebook, and Netflix — being run by their founders — that keep growing at over 20% per year.
Such CEOs are possessed of talents that our economic system rewards handsomely — to wit, Bezos’s net worth of $78.7 billion, according to FORBES, is drawing him a mere $9 billion from surpassing fellow Seattle resident Bill Gates’s $87.7 billion.
2. Amazon Web Services profitably dominates an industry it created
Amazon Web Services, its cloud-computing division, grew 42.6% to $3.66 billion “slightly topping estimates” and operating income of $890 million — a whopping 89% of the company’s total. AWS’s 24.3% net margin was higher than the previous year’s 23.5%, according to MarketWatch.
AWS still leads the pack in this rapidly growing industry that it created. Synergy Research reports that Amazon’s 40% share of the cloud-computing market beats that of Microsoft, Google, and IBM which combined control a mere 23% share.
3. Amazon Prime offers consumers an irresistible value
When I predicted in July 2015 that Amazon shares would double, it was just getting started with its $99-a-year Amazon Prime that offers free two-day shipping and one-hour delivery on certain orders.
This loyalty program designed to boost the lifetime value of each Amazon customer includes “delivery discounts, music and video streaming and photo storage that keep shoppers engaged with the website,” according to Bloomberg. Amazon added audiobooks and podcasts to Prime in 2016 according to Fortune.