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Why Amazon?

Amazon revolutionized the way consumers shop. This isn’t the only tailwind to its impressive revenue growth, as its highly profitable AWS segment has also driven top-line momentum.
The company's best-in-class revenue growth coupled with modest operating leverage on its past infrastructure investments has led to elite EPS growth over a multi-year period.

Though dominant, Amazon's capital-intensive e-commerce business means its profitability is structurally lower than its pure-play tech peers. Can the company pull it up, or are we reaching a ceiling?

Key Topics & Areas Of Debate

For many of Amazon’s big tech peers, the key areas of debate center around revenue growth. Amazon is different, as the focus is on profitable growth due to its consistent reinvestment strategy and the structurally lower margins seen in its e-commerce business, where it must hold physical inventory.
Can Amazon leverage its vast logistics investments of the last two-plus decades while automating more of its operations and leaning into advertising to increase profitability? If so, its North America segment, which consists of its consumer-facing businesses, could see double-digit operating margins in the next few years (it was 9.8% for the last 12 months).

A more profitable North America segment combined with a faster-growing and structurally higher-margin Amazon Web Services (AWS) could mean earnings power that is orders of magnitude larger. Higher earnings typically lead to higher stock prices.

Competitors

Despite its scale and dominance, Amazon doesn’t operate in a vacuum. Walmart (NYSE:WMT) and Target (NYSE:TGT) - with their improving omnichannel footprints – are competitors to Amazon’s e-commerce and Whole Foods businesses. And while it has a first-mover advantage in the public cloud services market, Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) are working hard to catch up.

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Disclaimer

The user DrBaraa_Alnahal has a position in NasdaqGS:AMZN. Simply Wall St has no position in any of the companies mentioned. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.