Most people think of Amazon (NASDAQ: AMZN) as an e-commerce company, and for good reason. It has become the online marketplace of choice for millions of consumers around the world. But the company also participates in two other expanding industries, both of which could fuel significant growth in the coming decade.
In this Backstage Pass video, recorded on Jan. 4, Motley Fool contributor Trevor Jennewine explains why Amazon could surpass Apple (NASDAQ: AAPL) as the world’s most valuable company in 10 years’ time.
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Trevor Jennewine: The company competes in three high-growth industries. You’ve got e-commerce, cloud computing, and digital advertising. The market cap is $1.7 trillion right now. I think that could double in the next five years, I certainly think it could surpass Apple a decade from now.
Just to put its competitive edge in perspective, within the US e-commerce market, Amazon holds 41% market share. The next closest competitor is Walmart with 6.6% market share. So it’s multiple times higher than the next closest competitor.
In cloud computing, Amazon has 32% global market share. The next closest competitor is Microsoft with 21%. That cloud computing side of its business AWS, the operating margin on AWS was about 29% in the most recent quarter compared to about 4% in its North American e-commerce business and 1% in its international e-commerce business. This is the cash flow growth engine for the company.
Digital advertising is turning into another one. They currently have 11.6% market share in the digital advertising market. That’s up from about 8% in 2019, and it’s expected to rise to about 15% by 2023. Meanwhile, [Alphabet‘s] Google and [Meta Platforms‘] Facebook are still the top two dogs in that market. But Google’s market share is expected to fall by about 2% by 2023, down to about 26%. And Facebook’s market shares is expected to hold steady around 24% or so.
If you’re an Amazon shareholder, one thing you might be concerned about is they’ve generated negative free cash flow over the last 12 months. Cash from operations actually dropped about 1.2%. The company is investing aggressively in building out its fulfillment network. Even now, during the most recent quarter, CEO Andy Jassy mentioned that Amazon almost doubled the size of its fulfillment network since the beginning of the pandemic. I think that enables them to provide that great delivery experience for customers, and I think it reinforces their competitive advantage.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine owns Amazon. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Meta Platforms, Inc., and Microsoft. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.